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Pricing strategies in marketing

Thu, 22 Jul 2010 21:25:13 +0100

In this second post probing the importance of pricing in purchasing behaviour, we examine the role price structure plays in establishing a market advantage.
By Sean Ashcroft In his report called How To Stop Customers From Fixating on Price, co-author Marco Bertini explains how to use pricing to reduce price sensitivity.
Bertini, assistant professor of marketing at London Business School, says that pricing should always draw attention to the value a product or service delivers, “and ideally to the one dimension that most meaningfully differentiates it from those of competitors”.
Achieving this, he says, will almost certainly require a price structure revision, and gives a real world example to illustrate the point: “Goodyear’s problem for a long time was customers were unwilling to pay a premium for the innovations it introduced to extend tread life. Without a clear reference price for tyres, buyers gravitated to the lowest price.
Pricing structure in marketing 1. Goodyear charge by the mile  Bertini explains how Goodyear solved this problem by pricing its various models on the basis of how many miles they could be expected to last, rather than their engineering complexity. “This highlighted the advantage of those innovations for customers and taught them a new way to compare offerings that was perfectly aligned with the company’s value proposition,” he says.
Revisiting pricing structure is something far too few companies tackle, writes Bertini. “When managers worry about pricing, they typically focus on determining the optimal price point for a given product.”
Managers, he says, readily drawing upon market testing or research techniques -- ranging from simple surveys to full-scale conjoint analyses -- to discover how much demand would be generated at different prices.
They will also factor in variables, such as advertising or merchandising budgets -- or the lack of them -- as well as analyzing different customer segments.
“But what they fail to do,” says Bertini, “is examine the larger framework in which such questions reside”.
Pricing structure in marketing 2. Case studies He cites case studies of businesses who have examined this larger framework:
- Industrial explosives firm, Orica, which escaped commoditization with pricing that charged customers according to the fragmentation of the rocks extracted rather than the amount of explosives spent.
-- General Electric, which changed its airline engine pricing to deliver ‘power by the hour’.
-- Pultry health firm Embrex, which offered poultry breeders inoculations ‘by the egg’, aligning pricing with the value breeders seek from healthier animals.
“All these companies realize that pricing based on units sold does little to set them apart from the competition,” concludes Bertini. “In fact, it promotes price comparison by establishing a simple common denominator that customers seize on.
“Telling customers they’ll be charged according to the value delivered encourages them to reassess their preferences in line with that value, and sends a powerful message that the seller stands behind its offering.”

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Product pricing as a market strategy

Product pricing as a marketing strategy

Wed, 21 Jul 2010 13:39:42 +0100

In the first of two posts examining the importance of pricing in purchasing behaviour, we look at why customers and clients get so hung up on price.
By Sean Ashcroft FACED with an abundance of options for products and services, it can seem customers and clients behave as if only one factor matters in the buying decision: price.
A report by Harvard Business Review – called How To Stop Customers From Fixating on Price -- explains that this price obsession is because customers and clients view products and services as commodities.
Report co-author Marco Bertini, assistant professor of marketing at London Business School, says the problem, while thorny, in not insurmountable.
Product pricing as a marketing strategy 1. Undercutting peril  Bertini observes that while most markets today are mature enough to feature intense price-based competition, “the constant undercutting to capture customers sometimes spurs efficiency gains, but more often it damages brand equity and erodes profit margins”.
He adds that this is compounded by low expectation on the part of customers: “They fixate on price, and lose interest in marketing communications and all but the most radical innovations.”
But Bertini contends that it’s possible to “jolt customers into considering the value of your offering in terms of quality and personal relevance”. He explains that the idea is to persuade customers that they have a meaningful decision to make, and that the way to achieve this is -- paradoxically – to use the last thing businesses want to be decisive: price.
Product pricing as a marketing strategy 2. Four strategies  “Our research suggests four pricing moves in particular can diminish the salience of price in a transaction,” says Bertini, who goes on to outline these options:
1. Pricing structure Companies can change pricing structure, as Goodyear did when it priced tyres according to how many miles they would last.
2. Stimulate curiosity Willful overpricing may seem like a counter-intuitive strategy, but it will get you noticed. UK cosmetics company Burt’s Bees took this approach does with its natural beauty products.
3. Price partitioning Price can be ‘partitioned’ to make customers notice a key benefit. IKEA does this by charging separately for a table’s top and legs, thus alerting customers to its modularity.
4. Blanket pricing Bertini says firms can put the same price tag on a range of options, causing customers to weigh their preferences. Swatch took this option when it charged $40 for all of its watch designs.
What all of the above strategies share, observes Bertini, is the close link between pricing and customer attention -- a link that’s not yet been explored by marketing adademics, and one with significant implications for businesses.

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Customer segmentation: prospects crucial, too

Wed, 14 Jul 2010 13:09:35 +0100

By Sean Ashcroft WHEN discussing segmenting a target audience, many people do not see beyond existing customers. Yet what about the segmentation of prospective customers and clients? This is important, too.
When seeking new business it’s crucial to establish whether there’s a market for your products and services. Plus, you need to identify the type of people that constitute ideal customers. This may be based on existing customer profiles, or maybe you wish to expand your horizons and identify new classes of customer.
Whatever your ambitions, the key thing is to paint pictures of the type of individuals that represent members of your target audience. Your prospect, are likely to have different needs, wants, values and opinions – and they will respond quite differently, depending on the marketing method you use.
Marketing Donut cites the following examples of the vastly different customer prospects that can form a company’s target audience:
Mature males; disposable income; retired, or in semi retirement; live in a rural environment.
Teenage girls; living in cities; low disposable income; aspirations to enjoy life to the full.
These are extreme examples, but they show just how different segments can be and why it’s crucial to target communications precisely, and not send the same messages across an entire customer base.
As you analyze your customer base, it will become clear there are a number of distinct groups with specific requirements.

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Customer segmentation: a checklist

Tue, 13 Jul 2010 13:02:00 +0100

By Sean Ashcroft NO TWO customers or clients are the same, which is why a templated approach to business can never work – any more than a one-size-fits-all strategy would work in one’s dealings with family, friends and colleagues.
To become more effective in identifying and serving the needs of your customers or clients it’s important to segment your target audience into smaller groups.
Customer segmentation: 1. Understand what makes customers tick Andrew Gerrard, of UK communications agency InTouch Marketing, says segmenting a market “helps you develop a deeper understanding of clients and customers, and discover what makes them tick”.
In turn, this means your communications with customers will be more targeted, relevant and effective.
Audiences are segmented by type, with the most typical categories being:
- Spending patterns
- Gender
- Location
- Age
- Socio-economic group.
Customer segmentation: 2. Understanding buying behaviour “What’s important are those differences that actually affect buying behaviour,” says Gerrard. “What makes each person buy? If you run a hairdressing salon, for example, the type of offers you make to customer groups would differ along gender and age lines.
“For a mail order business, you’re better analysing buying patterns, and split customers into groups according to how much they spend, how often they buy or what products they are most interested in.”
Customer segmentation: 3. A customer segmentation checklist  The following is a customer segmentation checklist, as published by Marketing Donut, a joint venture business resource set up by Google and the Royal Mail.
1. Who do we want to talk to?
- Customers
- Lapsed customers
- Potential customers
2. What do we know about these groups?
- Name
- Address
- Phone number, email address
- Purchase history
- Profitability
- Contact history
3. Where do we hold this information?
4. How up to date is it?
5. Does it comply with data protection rules?
6. Have we checked telephone and fax preference service?
7. Are email addresses opt-in?
8. What is the buying history of customers? Are they:
- Big spenders
- Specialist buyers
- Occasional shoppers
- Old customers.
9. Have we segmented customers into different types?
10. Have we developed profiles of each type of customer?
11. Is our marketing communication targeted?
12. Are there some easy wins?
13. In cold contact what is our response rate?
14. What is our conversion rate?

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Competitive Strategy - a book review

Thu, 8 Jul 2010 20:24:35 +0100

MICHAEL E Porter’s Competitive Strategy: Techniques for Analyzing Industries and Competitors simplifies the complexities of commercial competition, furnishing businesses of all sizes and disciplines with a methodology for optimizing competitive advantage strategies.
The work comprises three parts - General Analytical Techniques, Generic Industry Environments, and Strategic Decisions. Its brace of appendices -- Portfolio Techniques in Competitor Analysis, and How to Conduct an Industry Analysis -- will also be welcomed by its target audience.
Competitive Strategy Part I This is a discussion of the structural analysis of industries, examining overall cost leadership, focus, and differentiation.
Competitive Strategy Part II  Here, Porter discusses competitive strategy in different sectors and under various conditions, including fragmented industries with no market leader, start-up industries, mature sectors, declining industries, and global markets.
Competitive Strategy Part III  This deals with strategic decisions facing businesses, such as vertical integration, expansion, and entry into new markets.
This book first appeared in 1980, and its publisher claims that “more than a million managers, investment analysts, consultants, students, and scholars” have applied its ideas “to assess industries, understand competitors and choose competitive positions”.
Extravagant, perhaps, but there’s little doubt this tome is required reading for anyone who wants to become a student of competitive advantage strategies.
About the Author
Michael E. Porter is Professor of Business Administration at the Harvard Business School and the author of 14 books,

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Small business competitive advantage: the basics

Thu, 1 Jul 2010 11:46:04 +0100

By Sean Ashcroft ALL businesses face competition, no matter how small the niche. Even the only restaurant in a small town has to compete obliquely, with cinemas, bars and other leisure-time outlets where potential diners may chose to spend their time.
Small business competitive advantage: 1. Think global  Plus, with an increasing amount of goods, services and leisure options being purchased or researched online, firms are no longer competing only with businesses in their vicinity: you could find that you’re actually up against companies overseas, too.
Or it may be that rivals for customers and income could be a start-up that’s offering a substitute or similar product that threatens to makes your own redundant. Competition is not simply just another business that might take money from you – it can be a competing product or service that's being developed, and which you ought to be selling, or looking to license before somebody else beats you to it.
Small business competitive advantage: 2. Resources And don't just research what's already out there; you need to be on the lookout constantly for new entrants to the market. The resources and strategies below are just some of ways you can identify competing companies, products or services:
- Local business directories
- Local Chamber of Commerce
- Press and online advertising
- Press reports
- Exhibitions and trade fairs
- Questionnaires
- Online searches for similar products or services
- Information provided by customers
- Flyers and other marketing bumpf sent to you (especially if you're on a bought-in marketing list)
- Search for existing patented products similar to yours
- Planning applications and building work in progress

The above article was drawn from content on Business Link, the UK Government’s website for businesses of al sizes.

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Attracting new customers –- narrow the focus

Tue, 15 Jun 2010 16:20:19 +0100

By Sean Ashcroft JOHN Jantsch of Duct Tape Marketing runs through a number of effective methods for small business owners to narrow their focus on the ideal customer profile for their company. His advice includes:
-- Make a study of what constitutes an ideal customer for your business. Many business owners aim for bigger clients, but these may be unsuited to you. Clients who place great value on what you do may be a better bet, and those who pay on time and treat your staff with respect may also rank highly in your ideal client profile.
-- Place all existing clients into a spreadsheet and highlight those you enjoy working with. Who you want to work with is as important as who wants to work with you.
-- Look at ‘psychographics’. These are the things that clients do and say that signal to you that they are likely to value what you do. Do they expect to pay a premium? Do they participate in associations and trade bodies? Do they subscribe to particular business to business magazines?

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Presentation Mistakes - the 8 cardinal sins

Mon, 7 Jun 2010 20:12:29 +0100

This is the first of a series of posts probing problems and strategies surrounding effective business presentation skills. Part 1: Common presentation problems.
By Sean Ashcroft COMMUNICATION is the oil that lubricates business – but a recent study by the CBI identified that the British economy wastes over £40 billion a year because of poor management and poor communication. The main costs come in high staff turnover and lost business.
In-house and client-facing presentations are events that too often leave people on the edge of their sleeping bags. The following are the most common causes of life-sapping presentations.
“Do you believe the standard of presentations in your workplace is satisfactory?” asks Richard Johnson, director of the College of Public Speaking. “Or do you suspect the standard is far from satisfactory. Whatever you believe, the truth is that 90% of attendees at most presentations have switched off within the first 5 minutes.”
The most common causes for this sorry state of affairs is:
Presentation mistakes 1. Nerves This affects many people to varying degrees, but if you are solely focused on controlling your nerves you will be unable to deliver a good presentation. Imagine trying to aim for double top in a darts match when you are shaking with fear.
Presentation mistakes 2. Lack of training For most parts of your job you are probably given reasonable training, guidance and help by more experienced colleagues. However, for some mysterious reason there are 3 things that many organizations do not do well – manage people, interview and selection skills and …. deliver presentations.
Presentation mistakes 3. Death by PowerPoint  The majority of presentations simply duplicate what the speaker is saying – would you bother to watch television if it sounded like listening to the radio combined with reading a book? Wouldn’t you just choose to read the book or listen to the radio?
Presentation mistakes 4. Ignoring the audience We’ve all been bored by the person in the pub who wants to monopolies the conversation and talks for ages without letting anyone else get a word in. So why don’t we think about how boring a 30-minute presentation is if it sounds like someone just sounding off in a pub?
Presentation mistakes 5. Deadly dull data  In a social setting, when people drone on about something that has no interest to you, it makes you want to walk away. Even worse is when people drone on about something that does interest you, but manage to make it an exercise in tedium. How many presentations have you sat through which fall into one or both of these categories?
Presentation mistakes 6. Reading to oneself Many people come to presentations as actors would to a first dress rehearsal; they simply read their notes, and the audience may as well not be there. It’s why theatres are full for performances and empty for rehearsals.
Presentation mistakes 7. Lack of conviction If the presenter cannot generate sufficient enthusiasm in their delivery, why should the audience listen?
Presentation mistakes 8. Aimlessness Would you start a journey from your house to a strange, far away town without plotting directions? So why do so many presenters confuse their audiences by going off at needless, dull tangents?

This post is drawn from The Essential Need to Improve Presentation Skills Within The Workplace, a white paper from the College of Public Speaking.

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SME-development-strategies -- a 4-step plan

Fri, 21 May 2010 16:39:27 +0100

TO BE successful in developing a business, there are four things that cannot be ignored. The following should be undertaken in numerical order.
SME development strategy 1. Quiz your clients  What do your clients want more of? What do they want less of? If you never ask, you’ll be left guessing.
A great way of gleaning this information is through anecdotal evidence. This you gather by dropping these and similar questions into conversations with your clients, explaining that it’s aimed at providing a better service. This will not only help you service client needs more effectively, but will demonstrate to existing clients that you are a proactive and concerned service provider.
Such information gathering has a double benefit, as it gives you an excuse to re-establish contact with lapsed clients. If they are lapsed because of dissatisfaction with your service then it’s important that you know the details. And again, it demonstrates that you care – and may well be the prelude to bringing them back on board as clients.
SME development strategy 2. Show interest in client affairs  Meet with clients regularly; discuss their business; attend their internal meetings; conduct free in-house seminars for them; read their trade magazines; and do them small favours. This is more important than entertaining and schmoozing with clients. Take care of business relationships first, and maybe cement this later with personal relationships building.
SME development strategy 3. Rediscover the passion If referrals aren't providing insufficient new-client business, go back to steps one and two, and make sure you're doing all you can to follow them.
Next, do this: identify which new clients you’d be willing to serve free. This will help you draw up a list of dream clients – those whose business you are passionate about.
Once you've decided who you want to serve, design a package of activities to demonstrate you have a special interest in them, that you have something of value to offer them, and that you are willing to work to deserve and earn their trust.
Prove your interest and worth by giving dream prospects something useful: an article, a speech, a piece of research, an idea, or a seminar.
SME development strategy 4. Listen, and you shall be heard Once a prospective client shows some interest in you, the key is listening, not talking. The key talent in good selling is being good at getting the client to tell you his or her problems, needs, wants, and concerns.
Treat your prospect like a client from the minute you meet: react, give ideas, explain options, and provide an education. Don't wait until you're being paid before you're helpful.

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Getting referrals - the art of planting seeds

Thu, 13 May 2010 20:34:18 +0100

ALL businesses would like to think their most powerful marketing tool is the quality of their services or products -- but sometimes even happy clients and customers need a gentle prod to encourage them to happily evangelize your business.
This is the second of a series of video posts on referrals marketing strategies, delivered by Bill Cates, one of the world’s top experts in this area.
Cates talks about ‘planting seeds’ in clients’ minds -- gentle ways to urge them to spread the word of your unparalleled expertise and quality of service.

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Getting referrals - are you referrable?

Wed, 12 May 2010 13:06:13 +0100

WHO better to market your company than the people who need no prompting to do so -- your happy clients.
Word of mouth is the most effective and cheapest form of marketing, bar none. if your clients are referring others to you without you asking, then you are doing plenty right. If you are getting no or few referrals, then you need to ask why.
This is the first of a series of video posts on referrals marketing strategies, delivered by Bill Cates, one of the world’s top experts in this area.

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Business newsletters put you on clients’ radar

Tue, 4 May 2010 22:16:29 +0100

EMAIL newsletters are one of the best ways to remind clients and customers why they need your services, products and expertise.
A quarterly or monthly digest of news, insight and information that will be valued by your audience is one of the most cost effective ways to generate repeat business.
And by inviting client prospects to sign-up to your bulletins -- via your home page -- you can also quickly add quality contacts to your email list.
The above video outlines some useful ideas for newsletter content.
And below are a number of newsletter resources that will help you begin and sustain an effective newsletter campaign.
Email marketing best practice guide
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Chartered Institute of Marketing newsletter course

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Small business and recession - opportunity knocks

Tue, 4 May 2010 20:12:19 +0100

MARKETING out of a recession can open up opportunities for many SME’s, according to UK Business Advisors (UKBA).
Reviewing the foundations of a company and its marketing is not complicated. However, it is something that many firms forget to do regularly.
The basic questions to ask include who are your best customers and why do they really buy from you and not your competitors? It is important to know what sort of new customers you really want.
Also, think about how you want to be seen by your customers or clients. Having a good understanding of a company’s market position is not difficult to achieve, claim experts at the UKBA, although it may often require external help.
However, without reviewing the real marketing position, significant amounts of effort and cost could be wasted. It is therefore basic good practice to review this regularly.
Producing a simple marketing plan will help to clarify the actions required to achieve results and also produce agreement within the company at all levels. Marketing tactics can then be employed to get the correct messages in front of the right potential customers.
Marketing specialist Phil Taylor said: “Now more than ever, it is vital that companies know why people buy from them and what makes them superior to their competitors.
“Understanding their unique selling proposition should drive the marketing initiatives through 2010, resulting in better sales opportunities down the line.”
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Small business and recession - why size matters

Thu, 15 Apr 2010 11:22:54 +0100

IN THE third and final part of this series on recession strategies for SMEs, we explore the uniqueness of the current recession, and why small businesses can eclipse large firms in their ability to respond.

PREVIOUS recessions can provide pointers as to possible responses by businesses but what makes the present downturn unique is the increasing globalisation of economic activity.
Globalisation has sprung largely from declining costs in transport and communications, and because of this local actions can have far-reaching consequences. Globalisation creates new opportunities and threats, and adds complexity to business decision-making.
Even large, powerful multinationals may find it difficult to manage the global influences that shape business plans and performance under recession conditions.
Small business and recession: 1. Beware contradictions Businesses need also be aware that recessions in general create contradictory circumstances -- some constraining firms, and others enabling.
For example, falling GDP exerts squeezes consumer expenditure and confidence, with implications for business performance, but at the same time, this reduces asset prices, which helps firms with resource acquisition.
And while falling demand will lead to business closures -- particularly among new firms -- this hands greater market share to surviving firms.
There is no single ‘recession effect’ for businesses, nor any ‘best way’ to adapt to the challenges posed by economic downturn.
Successful strategies to cope with recession are likely to be context-specific, varying across industrial and geographical settings.
Small business and recession: 2. A sliding scale of discretion  Markets impart pressure on firms to adapt to changing circumstances, or to risk decline and exit. But while businesses may use discretion regarding the recession strategies they adopt, the degree of choice is usually constrained by resources or circumstances. Larger enterprises, for example, can use discretion more freely than SMEs due to their greater market resilience.
In general, though, firms adapting quicker and better -- without necessarily having knowledge of what constitutes ‘better’ in advance -- will be more likely to survive the recession and position themselves well for economic upswing.
Small business and recession: 3. Why SMEs often defy downturns  Small businesses are more vulnerable to market shifts, as they lack resources and have a smaller range of products or services, yet some studies show small businesses report more limited impact of recession than larger enterprises.
This may be because small businesses possess the flexibility to adjust processes, prices and products quickly in response to recession – all crucial factors in securing survival.
Small firms are also more willing to engage in risky investment and innovation to improve performance, as they realise the current successful situation cannot continue indefinitely.
A study of US software firms during the dot-com downturn, for example, found start-ups were much more likely than larger businesses to pursue revenue-generating strategies as means of coping than strategies entailing cost reductions.

This blogpost was drawn from ‘Business Strategies and Performance During Difficult Economic Conditions’, published by Kingston University Department of Business Innovation and Skills. Click here to download the entire report.

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