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Creating Value & Pricing Strategies

Creating Value & pricing strategy thoughts and ideas

benefit-segmentation-as-a-strategy

Why you should be using benefit segmentation as part of your pricing strategy

Background

A key part of a pricing strategy is determining how to differentiate your brand. “What?”, you may ask. Isn’t brand differentiation normally accommodated in the communication strategy arena? This is true. However, it is also very strongly linked to a pricing strategy. This is because brands that are able to differentiate effectively are generally able to compete on a basis other than price.

Opportunities for brand differentiation

How then do we differentiate a brand? There are several paths to get there, but one powerful enabler comes from benefit segmentation. Traditionally, brands have used various forms of segmentation such as demographics (age, income, gender, et cetera), psychographics, geography, and other approaches.

Benefit segmentation and pricing strategy

Benefit segmentation typically involves finding benefits that are relevant to the part of the market, and which potential customers will pay for. Benefit segmentation can typically cut across other segmentation bases such as demographics, psychographics, or geography. Benefit segmentation is also useful in that it is easier to communicate.

The basic idea is that differentiating a brand along the lines of benefits lessens competing alternatives, helps make the brand more relevant to prospective customers, and in doing so allows a pricing strategy that is not necessarily based on low prices, but rather on a premium pricing basis.

Benefit segmentation can typically be expressed at three levels, namely functional benefits, emotional benefits, and self-expressive benefits.

Functional benefits

These benefits are typically intrinsic to the product or service being offered. Examples may include:

  • being the most economical
  • safest in its class.
  • most convenient in terms of location.
  • open after hours.
  • externally certified processes to offer high levels of quality.
  • designed by a world-famous designer.
  • a proprietary technology.
  • top rated advisers to give you the best advice.

You will notice that all of these benefits are relatively easy to communicate. They can be used to differentiate a brand. Ultimately, they can assist you to charge a higher price if your competitors cannot offer these qualities while you can.

Emotional benefits

Emotional benefits are more complex. They are typically derived from functional benefits or directly from assumptions made from a brand’s communication strategy. Emotional benefits are rather useful in that they are more difficult to replicate should a competitor wish to copy your communication strategy.

Typically, emotional benefits may also be based on several other benefits and can provide a positive halo around your brand that lets you charge more for your products or services. For instance, a functional benefit offering top-rated advisers to give you the best advice would lead to an emotional benefit such as peace of mind. The bottom line is that it provides a vehicle to let you charge more for your products or services.

Self-expressive benefits

Self-expressive benefits are generally the highest level of benefit based differentiation. They may be derived from functional benefits or emotional benefits but ultimately are an enabler that customers of a brand will use to say something about themselves. This is a very powerful form of benefit and is typically quite difficult for competitors to replicate.

It can also rely on forms of brand building that focus on causes. This could leverage digital communication channels that do not necessarily promote the product or service directly, but offer timely and relatively lost cost forms of brand-building and pricing power for you. Generally, brands offering a desirable self-expressive benefit have the potential to charge premium pricing.

After having seen the variety of options open to you, it may be worth rethinking how you associate features with benefits for your products and brands to have greater pricing power and profitability.

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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price_elasticity

Using price elasticity to your advantage

Background

Anyone who has done Economics 101 will have seen a demand curve with a price on the one axis and demand on the other. The principle is to demonstrate that demand declines as price increases, except in some unusual circumstances. Along the way, you will have learned that price elasticity is an indicator of exactly how price changes affect the volume sold.

In practice, I’m asked about the price elasticity of a particular product or service, and how it impacts on pricing and brand strategy. The reality is that there is no specific price elasticity that applies in all cases. Although this creates more complexity, it also provides you with more opportunities to grow your profitability. Furthermore, in certain smaller markets, such as B2B markets, circumstances may be such that it may sometimes be difficult to get the data to calculate price elasticity at a specific point in time.

The following principles are therefore worth considering under such circumstances.

The relationship between the price charged and the quantity sold is often not linear. Therefore price elasticity is often not linear. Use this to your advantage.

When alternatives to switch to are increasingly costly, an increase in price won’t always necessarily have a specific decrease in quantity. Understand who your competitors are likely to be and how difficult it is for customers to switch to these alternatives.

The area of pricing indifference should never be ignored.

Pricing visibility, switching costs, and inconvenience – these are all issues that add friction when customers consider your price increase. For certain items, not everybody knows or cares about knowing what your prices are at all points in time. Therefore, indifference can be advantageous to you as long as pricing changes are done within reason.

Segmentation can be your friend when pricing.

In addition to what you’ve read above, sensitivity to price can vary widely across customer segments. Clear strategic thinking should guide you regarding segments where you should compete – due to relative price insensitivity, and segments that you should avoid at all costs – due to price sensitivity.

It is also worth mentioning that our analytics have uncovered instances where ongoing price promotions in specific channels and segments have had the effect of seemingly converting price-insensitive buyers to price-sensitive buyers over relatively short periods of time. Always think carefully when running a sales promotion that is price-based. Although it may build your volumes on a short-term basis, it needs to be considered in conjunction with your brand strategy to avoid long-term brand damage and profit margin damage.

Don’t ignore your communication approach when promoting a price.

Humans are surprisingly inefficient when it comes to converting a price to a standard rate. Although legislation exists in certain markets and industries to force clear pricing (e.g. per kilo), it does not exist in many other industries. To this end, pricing on a daily, monthly, or annual rate can be surprisingly effective at managing price sensitivity.

Time can change a lot.

Markets can change a lot over time. Needs and preferences change.  Technology that affects who our competitors in a particular industry are can also change. To this end, it is worth reviewing how price sensitivity is changing over time. Equally importantly, understand which disruptive new technologies may change the competitive landscape so markedly, that discussing minor price changes becomes an irrelevant exercise when your business faces extinction! (Hint: Consider Uber vs. The taxi industry, or Newspaper advertising  vs. Google.)

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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Should pricing strategy aim at building profitability or market share

Should pricing strategy aim at building profitability or market share?

Background

Do profitability and market share not always come together, you may ask? To some people this question is heresy. To others, it is simply obvious. The reason for this is that most business people have been brought up to believe that market share needs to be grown constantly, even if prices need to be kept at constantly low levels.

The prevalence of this thinking appears to be based on a logical theoretical underpinning. Most business school students since the 1970s have come to learn that growing market share leads to various scale economies leading to lower costs and hence greater profitability. Hence, the thinking goes, price lower to build market share and you’ll be fine from a profitability perspective.

 

Does it make sense to keep growing market share at the expense of profitability

However, this view has changed. Companies are increasingly questioning whether this logic is in fact always correct. Some have suggested that the theory was based on a somewhat flawed conclusion from a study that found that market share and profitability are correlated. Yet, a correlation between market share and profitability does not mean that market share necessarily leads to profitability. Clearly correlation and causality are not the same things, as many statisticians will concur.

Additionally, the notion that high market share results in ever decreasing costs and therefore higher profitability is also debatable. In the 1970s this may have been the case. In fact, this may still be the case in certain industries. However, we have all seen price wars to build individual competitors’ market share, that does not leave the overall industry, or most of its competitors, any better off than when they started the price war. Besides the obvious disadvantage of too much production capacity chasing too few customers in a market, other considerations such as evolving technologies also play a role.

 

How technology is changing the competitive playing field

As technology changes, the need to produce large volumes to constantly lower cost is no longer always a prerequisite. More to the point, the fact that products and services can, in fact, be customized more easily, and at a lower cost with emergent technologies, suggests that they have the potential to be more differentiated and can, therefore, command higher prices than their competitors’ offerings.

For instance, consider how 3-D printing has allowed manufacturers to produce cheaper molds for injection molding in short periods of time. This provides them with the benefit of being able to customize their products for different segments rather than being forced to provide one product only due to the high cost of producing an injection mold.

Consider also how 3-D printing is enabling sports shoe manufacturers to customize shoes for the individual customer, and in so doing produce the product on demand. This creates substantial product differentiation while lowering the potential for customer switching. It also removes the need for offshore production facilities thereby reducing potential obsolescence, logistics-related costs, and production lead time.

 

Bring segmentation into the picture to adapt your point of view

If you take this thinking further, and you start asking whether highly differentiated products that can be made at relatively low cost, operate in the same market, you may conclude that they do not. Therefore, the very notion of growing market share in one large market that is perceived to be homogenous may not be ideal. In fact, there may be several submarkets within one larger market as a result of technological advancements that are able to successfully adapt to particular consumer needs. This makes the original question of market share versus profitability redundant.

Furthermore, the idea of treating customers as a largely homogeneous group of people is problematic. Competitors that are able to segment a market into several profitable sub-markets can generally differentiate themselves more effectively and command higher margins within each of these sub-markets. Several progressive organizations have latched onto this idea and largely abandoned the market share paradigm to pursue a sustainably profitable future. How do you plan to reconsider this in your business?

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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Some less known facts around the role of pricing in driving business success.

Pricing’s role in driving business success. 7 areas where pricing strategy can yield profitable outcomes.

Background

Pricing is possibly the biggest profitability lever in your business! At first glance, this finding is often surprising. We know that pricing affects competitiveness and overall profitability.

Yet, shrewd pricing can often be the fastest way to improving growth and profitability. This is because the mechanisms around pricing need not necessarily require other complicated processes to work, to achieve success. Many of us would be familiar with the studies that have shown that a 1% increase in price can result in operating profit increases that may range from 16% to 155% across a variety of Fortune 500 organizations.

However, many of us will acknowledge that pricing is often something we consider last when compared to the more exciting aspects of doing business” such as launching a new product or developing an ad campaign. In fact, pricing is often done on a relatively arbitrary basis in many organizations. Some organizations have however noted the opportunity and acted on it.

Pricing can play a key role in a business

Pricing at all extremes can yield desirable results. Consider profitable digital businesses that have managed to achieve scale through globalization. They grow their businesses exponentially by charging prices that were previously considered unthinkably low. They have shown what could happen when you price at a level that enables consumers – who would have never considered entering a particular category – to do so.

On the other extreme, consider luxury brands that offer high-quality products or services. Although their quality differentiates them, it has to be acknowledged that premium pricing plays a big role in the cachet which makes them so attractive.

Sadly, many other businesses in between do not pay sufficient attention to how they price and why they price that way. For instance, some will follow conventional industry practice while others will focus on traditional cost-plus accounting approaches. These are not necessarily wrong, but they ignore so much opportunity.

A common weakness is that many marketers will develop a product or service, price it, and then hope it sells. When the sales do not follow, prices are either cut, more is spent on the communications budget or additional new products or services are developed using the same approach. So how can you rethink your current pricing approach?

An alternative approach to pricing

Some businesses have flipped this problem on its head and started out in the opposite direction. They understand the price point at which they are likely to attract a large concentration of consumers in a category. They then develop a product or service that is desirable at that price. This forces them to focus on what matters and what doesn’t in terms of features.

By doing this, unnecessary features that are often part of any new product or service are culled. This is a strategy that has been adopted for the last century by a number of successful businesses such as McDonald’s and IKEA. Yet, it is an approach that is often not widely appreciated.

Although this approach places pricing first, it is not the only approach to being successful, as not all pricing decisions revolve around prices. Some will focus on features first. What this approach teaches us however is one of the fundamental tenets of pricing strategy that is broadly applicable:

  1. Understand the price at which you can attract sufficient customers to create a viable business.
  2. Understand which features you need to remove to be able to provide a lower-priced option that can be attractive to a smaller subset of potential customers with limited needs and budgets, with the hopes of a future upsell to the mainstream product or service.
  3. Understand which features should be added, at a higher price for those customers who want more functionality and exclusivity.

This starts to hint at segmentation strategies to ensure successful pricing.

Some of the areas where pricing strategy can yield profitable outcomes

Various opportunities exist to use a pricing strategy to boost profitability. These can be accessed by a better grasp of the following issues.

  1. Are our growth objectives based on profitability or market share? Where does smarter pricing and segmentation play a role in this?
  1. Are we too focused on the price elasticity of demand, and getting to a “correct price” while not capitalizing on other opportunities that may be “lower-hanging fruit” that is easier to benefit from?
  1. Are we pricing appropriately to retain our clients? What could we be doing differently?
  1. How are we pricing across our product/service portfolio? Why have we made the choices we have made? Does our portfolio pricing strategy give us an advantage in attracting and retaining business?
  1. How well are we integrating pricing strategy with communications strategy? What should we be doing differently?
  1. Do we use benefit segmentation to full effect to make our pricing strategy more successful? How does one do this in practice?
  1. Have we fully appreciated how a few changes to our discounting policies and strategies could markedly boost profitability? Are we successfully integrating discounting policies within our pricing strategy?

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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using pricing strategy to build client loyalty

Are you using your pricing strategy to retain your clients?

Background

Although a client may leave you for a variety of reasons, we generally find that there are two key drivers of defection that a pricing strategy can address.

The first is when clients feel they are not getting value for money. The second, more worryingly, is when they actually feel that they have been cheated by a brand and actively take steps to leave, possibly even badmouthing the brand afterward.

Addressing these issues, whether you are selling a product or service is essential. In the case of products, it means that the client will not buy from you again. In the case of services that are being delivered on an ongoing basis, it means that the client will not use your services in the future.

Therefore, this requires some thought around what the client understands that value proposition to be. This is relevant because the promise and the delivery based on those expectations will help the client to ascertain whether they are getting value for money, based on the price they paid.

Key areas to consider:

  • What value proposition are you offering? Have you linked the value proposition to the correct client segment so that it is relevant to them? This issue is a key contributor to misaligned price-value equations.
  • How are you communicating this value proposition? Has the client understood your value proposition? They need to value what they are paying for! If it becomes evident that the client did not understand your communications, has there been an effort to make the client understand what they are getting? Alternatively, has there been an effort, if feasible, such as in the case of a service, to upgrade or downgrade the client to a related service that will better meet their needs?
  • Have you considered having additional products or services positioned above and below the product or service in question, so that prospective clients can easily understand what they are getting and not getting for the price being paid? Sometimes, it is an easier communications job to show these alternatives so as to convince a client to buy into the desired option.
  • Does the pricing strategy encourage “loyalty” or desirable buying traits? This may be promoted through benefits such as easier access to senior employees at short notice, some services being temporarily bundled with a primary service at a reduced price, etc.?

Success at this approach can be visible through:

  • Repeated purchases over a period of time by the client.
  • Successful cross-selling helps to make it more difficult for the client to leave suddenly due to the effort in switching over to suitable replacements.
  • An increase in the client’s share-of-budget relating to how much the client buys within the category.

As you will have noticed in the discussion above, there is so little emphasis on cutting prices to make a client more loyal to you. Consider the variety of alternative options open to you to implement some of these concepts in your own business.

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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linking pricing strategy to communications strategy

How well do you integrate your pricing strategy with your communications strategy? The 2 questions you should be asking.

Background

Successfully integrating pricing strategy and communications strategy relies on a focus on two broad areas:

  1. How do we make ourselves look attractive to prospective customers so they will buy our products and services?
  2. How do we make current customers like us enough so they will continue buying our products and services and speak favorably of us to others?

How do we make ourselves look attractive to prospective customers so they will buy our products and services?

Pricing appropriately means understanding the customer segment we are targeting and the value proposition we will be using for that particular segment.

  • If the customer segment being targeted has a limited budget and expectations that are not excessive, the pricing and associated value proposition that is communicated will reflect the value that they are receiving.
  • If the customer segment being targeted is not necessarily on a tight budget but has other expectations that require more features, the value proposition that is communicated will discuss these and not necessarily focus on price.

No rocket science here you may argue – and you would be correct! But what are some of the insights that so many marketers miss in this process?

  1. Know who your targeted segment is and understand what drives them. This is critical so you do not become fixated on talking about low prices when you do not need to. To some customers, this will be a turnoff. Some of WisdomInc’s analytics projects for clients clearly demonstrate that price does not always drive sales and should not be reflected in communications.
  2. Know who you are competing with. If you have strong competitors, you need to make some choices. Sometimes you will choose to compete on price, but with a bit of thought, you may find a way of differentiating your offering. This has been achieved many times simply based on well-considered communications that enable perceived differentiation of your brand, irrespective of whether this is real or not.
  3. Try to understand how certain factors change the playing field to your advantage. These could include exclusive channels, location, availability by the time of day (or night), etc. Once again, our analytics for clients have demonstrated how clients using one channel buy on price in specific regions, but seem oblivious to price in other regions. These are real opportunities that are ignored at your own peril if they are not capitalized on in your communications!
  4. Consider how flanking products and flanking brands within your portfolio -if you have this luxury – can be used against price competitors. If you do this right, your communications strategy can be more effective by boxing competitors in a smaller market space than they had previously enjoyed.

How do we make current customers like us enough so they will continue buying our products and services and speak favorably of us to others?

In addition to the delivery of what you have promised to a customer, customers tend to be more appreciative if they recognize that they are gaining more from the deal with you than what they are paying for.

Put more simply, it means that your communications strategy can make your pricing more appealing if communications emphasize the value that customers are receiving. Let’s see how this works in practice:

  1. We know that customers are more attentive to your communications when they are doing business with you, rather than when they are merely prospects. Research bears this out. This means that communications shouldn’t just be about focusing on acquisition mode, especially given the availability of relatively low-cost digital communications channels. It is also easier to persuade an existing customer to buy more from you than it is to get a new customer to sign up with you. This has clear economic consequences for how you allocate your communications priorities and budget.
  1. We have all had that experience when, after signing up for a new product or service, we get that weighty manual or welcome pack which we often choose not to read. The point is that we end up ignoring the added value with our purchase as we are unaware of it. To this end, it is worth communicating this value with customers on an ongoing basis in small bite-size chunks that are easily absorbable given a limited attention span. It also makes a welcome change to dealing with suppliers that only bother communicating with you when they want to sell you something else.
  1. As much as this may seem painful to do, if you are offering customer service on an ongoing basis, and notice that the service is not being used to a large extent, it is sometimes worth considering whether the customer should be put on a cheaper package – with their permission, of course – to save them in the long run. This is something that tends to be difficult to do but provides you with the perception of being a fair partner that can be trusted. It also provides you with a customer who is more likely to stay with you. Should you not do this, you will possibly find yourself in the position that the customer comes to this realization on their own one day, or when approached by a competitor, and will simply leave, possibly never to return. Now think about the cost, time, and effort it would take to replace this customer. What makes the most sense to you?

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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  • Don’t be stuck at work trying to improve sales messages that show the unique value of your products and services – Online workshop

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pricing

Why you should be developing a comprehensive pricing strategy across your product or service portfolio. 2 approaches to consider.

Background

Over time, you may have put together a portfolio of offerings, be it a range of products or a range of services. In the early days, when there were fewer products or services in your range, you found it easier to price them.

At this point, you are likely asking yourself several questions:

  • Do we continue pricing each product or service on the same basis that we have used historically?
  • If different products or services face varying inflationary pressures, should we be applying a uniform price increase rate across the entire portfolio?
  • Have we applied any specific strategic rationale to the way that each product or service in the portfolio has been priced? In other words, are we pricing specific products or services on the basis of information at our disposal such as Channel influences, Geographic influences, Consumer buying behavior, and Competitive influences?

In our experience, many businesses do not have a specific pricing strategy when it comes to portfolio pricing approaches, be it across product SKUs or a range of services. Pricing may rely on historic precedents, competitor pressure, cost-plus accounting, or simply intuition. Moreover, opportunities to use a product or service portfolio strategically to gain a competitive advantage are not considered. We prefer to approach the challenge at two different levels, namely a data-driven level and a strategy crafting level.

The data-driven approach to this pricing challenge

The data-driven approach starts off by using data provided by the client. For instance, in the case of pricing across a portfolio of SKUs, we can take sales data across a variety of channels at SKU level and map it against pricing data as well as competitor and geographical data to offer guidance on where and when the price is a key determinant of sales movement.

This approach relies on the principle of “letting the data do the talking.” We have used it most successfully in the FMCG arena where packaged consumer goods are sold through a variety of retail channels with a variety of outlets, prices, locations, and competitors.

This approach is helpful as it comes with no preconceptions. It is helpful in providing useful guidance in decision-making environments where there is pressure to lower margins across an entire product portfolio. It helps to make the case for where the price is a key contributor to sales, and where it is not. This enables management to identify channel and location combinations where the need to cut prices may not be key to achieving increased sales volumes. It helps to prevent emotionally-based pricing decisions that could be harmful to the business.

The strategic thinking approach to this pricing challenge

Once we have the first step completed, you should start to think about crafting a strategy to address the challenge. You should understand why each product or service has been priced the way it has. Often, there will be some form of cost-plus pricing involved that has then been affected by competitive pricing pressure.

You should then try to understand the roles that each part of the portfolio plays in differentiating the brand. Is it about uniqueness, prestige, completing the product/service line? Consider some of these issues for instance:

  • Where are customers most aware of your pricing and where are they not? This could reduce perceptions of unfair pricing whilst providing you with opportunities to avoid unnecessarily low pricing.
  • Are you working across more than one brand in your portfolio? This means that products and services need to reflect the appropriate brand positioning. It also provides an opportunity to manage competitor threats by using your brand and product portfolio strategically to compete on the basis that suits you best.
  • Where specifically is competition most intense? Is it price-based or does it take other forms? Respond appropriately.
  • Are you dealing with one customer segment or multiple customer segments? Be most aware of whether the price is critical to each specific segment and respond appropriately.
  • What sort of purchasing frequency, values, volumes, and margins are related to each product or service. This is a risk-mitigation issue and an opportunity development question.

If you approach the pricing question from this perspective, you are more likely to ask the right questions and potentially uncover opportunities and risks that you previously unaware of.

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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pricing strategies and discounting

Why you should be managing your discounting policy as a part of your pricing strategy to grow sales and profitability in a smarter way. 6 questions to consider.

Discounting is a bigger problem than you may think

Pricing and discounting are two sides of the same coin. In fact, you could argue that discounting is actually a part of the pricing strategy. You need to get both right to grow your profitability.

Yet, while some businesses take time over their pricing strategy, details pertaining to the discounts applied thereafter are often left to accounting or, more worryingly, sales.

Why should you be concerned?

  • The ability to price well and get that price is of limited value if you simply give away those gains as part of an unstructured discounting approach. (In fact, giving a discount could be regarded as pricing incorrectly for the client in question right from the start.)
  • Discounts given to clients can be broken up into two key areas – on-invoice discounts and off-invoice discounts. What is the implication? The on-invoice discount is it least observable and measurable, while the off-invoice discount is a less well known entity.

Problems therefore come to the fore under at least two circumstances:

  • You may be losing money on clients that you thought were profitable, or
  • You may be providing a greater discount to clients who spend less with you.

Both present problems ranging from business continuity to possible difficulties with the competition authorities, depending on how dominant you are in your industry.

Approach the discounting challenge from a different perspective

These problems are unnecessary if you just have an approach to discounting that is well integrated with the rest of your pricing strategy. Areas that one would typically investigate could include:

  • Understanding what the prevailing discounting methodology is. This may sometimes take a while to achieve as varying interests within the business are not always keen on making the extent of various discounting levers evident, or measurable. Once the exercise is completed though it tends to be quite an interesting view of how discounting works in practice in your business.
  • Understanding how this discounting methodology came into being and who created it. We have found that this methodology often grows in fragments over time through several contributors of sometimes unknown origin. Due to this, and other sensitivities, there is often a lack of understanding as to why the structure is precisely the way it is. This is a significant lost opportunity for improvement.
  • Getting an idea of how often the discounting methodology is reviewed. Due to a lack of understanding of motivations behind the methodology applied, and a general lack of enthusiasm to fix what seemingly works fine, we have found that revisions are infrequent. This can create serious complications with far reaching effects in inflationary environments.
  • Understanding what the norm in the industry is when it comes to the discounting methodology that is applied. Industry norms can be necessary to adhere to, but they are worth questioning if they make no sense. We have encountered industry norms that very few industry insiders understand and whose origins they cannot explain. This can lead to nonsensical decisions and problematic margins over time. It may also invite scrutiny from regulators that can lead to other difficulties if not amended.
  • Investigating opportunities to integrate the discounting methodology with the rest of a coherent pricing strategy so that these two approaches are not in conflict with one another. This must happen to get the greatest possible benefit, and to be able to rationally explain why pricing and discounting policies are the way that they are.
  • Getting an understanding of the data so that one can best understand how the discounting methodology is in fact impacting the business, and what the areas of greater risk tend to be. It is even more interesting when actual data is run through the structure showing how much profit is lost to the business. This stage usually raises a few eyebrows and engenders disbelief.

Once you understand these issues, you are better placed to reconsider the structure of the discounting methodology in a way that incentivizes sales and other forms of positive client behaviour.

We are able to make recommendations around how this methodology should be reviewed and updated on an ongoing basis, and which parts of the business should take part in this process.

Should it be a necessity, one can also develop tools to enable sales to advise their clients on how specific client behaviour could be adapted to achieve different discount levels. Prevailing methodologies often lack imagination. There is much opportunity in this arena to be more creative than your competitors so as to drive higher sales and profitable outcomes. Most importantly, do not be so focused on discounting that you ignore the appropriate pricing for the client in the first place!

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

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price

Should your pricing strategy be about getting to a “correct price”, or should you be thinking about the question of an ideal price more broadly? 2 ways of thinking about it.

Background

I am sometimes asked to identify the “Correct Price” for a product or service. Is this possible? In theory, yes. But practically, you will find that there are many correct prices depending on who your customers are, when the product is being sold, and who your competitors are at the time of sale, to name but a few considerations.

Therein lies the beauty of a pricing strategy. You do not have to settle for a particular price at a specific margin all the time. Depending on the available opportunities and the added value you can offer, such as the convenience that you’re offering to customers, you have the opportunity to price differentially.

Some real-life examples to show how timing and location offer pricing opportunities

Think about what you would pay for a slice of cake at a fine restaurant, versus a coffee shop, versus a supermarket. Chances are that the cake across all three locations is relatively similar in quality. Yet there may be a 300% difference in price between the fine restaurant versus the supermarket offering. So, what changed? The ambiance within each particular location and the expectation of what you would probably pay at each location, as well as the range of competing alternatives would be price determinants. You would probably also believe the pricing to be acceptable given the circumstances and not question it further.

What about the bottle of headache pills you need to buy urgently in the middle of the night from a garage convenience shop? Compare this to the same bottle of headache pills being sold at the supermarket? The only difference is that one was made conveniently available to you at an unusual hour while the other was not.

Should you try to be idealistic about getting to the perfect price, or should you be pragmatic about how you consider this opportunity?

I could provide many more examples like those mentioned above. The bottom line is the following… Don’t be obsessed with the demand curve that you have seen in an Economics 101 course (you know the one that matches Price to Quantity sold and varies based on the curve’s elasticity).

You probably know what the current market pricing is and what volume it will generate. You may understandably want to know what a change in pricing will do to change your sales volume. Yes, these curves exist and can be generated with the right data. But chances are you may not have access to the correct data to do this. Should you get access to sales data, you may not even know not know what that demand curve looks if various price-sales scenarios that involve sales timing, location, and channel have been mixed together. Econometric models claiming to do this may also not be too convincing once you dig into how they have been built. How then do you get to a practical solution that makes financial sense?

As a more convenient alternative, start to think about the different ways that your customer and prospect base can be segmented in terms of their needs and how you may be able to price differentially based on those needs. Then think about how the demand curve mentioned above is likely to shift left or right or up or down based on the particular segmentation scenario you have in mind and amend your thinking along those lines.

Finally, start to create actionable plans that will enable you to execute this in the marketplace. For instance, consider:

  • Consumer segments that may pay more for whatever amendment you are making. E.g. 100% organic.
  • Channels will add value such as convenience.
  • Pack sizes that lend value to easier product movement by consumers with limited access to transport.
  • Pack sizes may be smaller and more affordable but could command higher margins.

These are just a few of many approaches.  Be creative and you will find that many price options exist that can boost your margins.

About the author

Alan Ohannessian started WisdomInc in 1999.

He has broad-based experience in how marketing strategy and analytics are practically integrated with other strategy disciplines for more effective outcomes.

Prior to starting WisdomInc, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period.

He has advised product and service organizations for more than 70 global and local B2C and B2B brands since 1995.

As a specialist across several disciplines, he is able to provide an integrated view of a solution when providing strategic insights. Areas of specialty have included Marketing Strategy, Brand Strategy, Communications Strategy, Brand Experience Management, and Pricing Strategy.

He has taught Marketing Strategy to MBA students at Wits Business School, on a part-time basis, through the “Marketing in a Connected World” course.

He holds a Master’s degree in Distribution Channel Strategy from the University of the Witwatersrand.

He has also completed a postgraduate dissertation in the area of cost-competitive mass-customization manufacturing strategies at Wits (where he taught Marketing Strategy, Consumer Behaviour, Marketing Research, and Retail Marketing over a 2-year period from 1993 to 1994.)

For further information, go to https://www.wisdominc.com or connect with Alan at https://www.linkedin.com/in/alanohannessian/

  • Special Offer! value-based pricing

    The Value Story Builder

    $49.99
  • Don’t be stuck at work trying to improve sales messages that show the unique value of your products and services – Online workshop

    Don’t be stuck at work trying to improve sales messages that show the unique value of your products and services – Online workshop

    $199.00