Tag Archives: boston matrix

Pricing Review: Step 6 in developing a marketing strategy

The final stages of the Customer Review are really important and we have just two to go before we start stitching things together.  If you remember, the first stage in developing a marketing strategy is thinking – which I call the customer review – and then we move into delivery.  We are now up to step 6 – Pricing review.

  1. Customer insight ✓
  2. The marketplace ✓
  3. Critique the current strategy ✓
  4. Identify and critique your enemies ✓
  5. Critique your current/planned offer in detail: Product / Service / Channel ✓
  6. Pricing Review
  7. Futurology

(6) The Pricing Review

pricing

My comments here can only be generic, but I will try to use examples, and forgive my inherent focus on Financial Services, it is what I know best.  There are clear and significant differences between actuarial pricing strategies and pricing an add-on service that is for related goods say.  The principles, process and purpose remain valid cross industry I believe.

Purpose:

  • To bring together your current pricing strategies and establish your position or powerbase in your chosen markets
  • To place you in context of customer and market expectations and reality

Process:

  • You will need to review your Boston matrices to remind yourself of the market and product attractiveness scores
  • You will need your value engineering that we completed in the last step
  • You will then need a clear and concise view of competitors.  You can use the Good Better Best tool and apply that to price if you like.  I find that helpful if using comparative advertising.  On that topic I was at an interesting DMA seminar last week on the improved ability we have as marketers to complete comparative advertising.  An area of legal flux that offers greater opportunities for exploitation than it once did. But only IF your target customers respond to comparative advertising or if one of your enemies is targeting you.
  • Establish answers to the following for the following three timeframes: 1) Now, 2) Go to in 12 months, and 3) desired position in 1-3 years i.e. where do you want to be in the pack?  Use a simple checklist for each of your offers:-
  • Best Market price – designed to drive SoM and place you as ‘new’ or as pack leader or innovative or indeed acquisitive territory.  Hero prices may be a tactic you employ here and of course you can, if your customers think it reasonable, come and go in this quartile e.g. by use of Sale pricing strategies
  • Best to Middle market pricing – compromising the profit of each sale, potentially, for higher than average growth in SoM.  Like best market pricing it may not be sustainable long-term unless you have a cost advantage vs the market – see Value Engineering in step 5
  • Mid Market – where the noise is in the field, you may want to have several competitive offers available rather than be a pack leader with a hero product.  This position is the mainstream and is usually a hard-fought battleground where leaders of the pack will emerge and others will fall back. This mid market price position usually drives long-term sustainable profit, but constraining growth potentially.  You may go here for cash cows to test elasticity of pricing – use your Boston Matrix from earlier
  • Worst in Market Quartile – you may have cost issues or exposure issues that drive this strategy or it may be that you have few strong competitors and no enemies attacking you.  Equally a new product or innovation as well as being keenly priced could be placed here if it truly is unique.
  • I would resist establishing too hard and fast a set of rules for competitive position vs your enemies.  I worked on a brand once that had a stated price position of being ‘the cheapest’ vs a basket of enemies.  The result – we had to move price and therefore profitability irrespective of our cost and performance if one of the enemies moved – not a great strategy I would suggest.
    • But do think about building in new year/summer sales, seasonality lifts in demand, making a new market in a new time period as options to allow you a pricing advantage or to beat your enemies.  One tool I have used in the past is to look at where companies over indexed on one product line e.g. ISAa at a specific time and used a great price in a different product line whilst their attention was diverted.  Your business intelligence of the strategy and performance of your competitors is invaluable here.  I love the HSBC New year sales … very good controlled marketing.
  • In pricing terms the value engineering and financial assessment we did in the last step is crucial but overlaying it with that of your competition is equally important … Try and look at what shifts they make and what their overall matrix of price positions look like – are they the same as yours?
  • Be clear what you can afford to charge/pay and know what your price elasticity is in each of your target customer groups and/or products.  This is critical.
  • Don’t neglect the new customer/existing customer balance either – in elasticity terms most consumers now ‘get’ the idea of an introductory discount, but too high a level of price shock at renewal (especially if there is an annual renewal or maturity) will drive churn and push costs up even higher.  In Insurance this allows the Aggregators to win – especially where prices are easily compared.
  • Finally write down and communicate the lead times it takes to make changes in prices for each offer – this could drive your responsiveness to changes by your enemies and could, at worst, mean you compromise your desired price position.

This process step is short – you have done most of the work earlier, but wide-ranging and it’s absolutely vital that Finance are engaged throughout to help you model your outcomes.

You need strategies for new sales, renewals, add-ons, cross sales and up sell and down sell levels for your customers.  Plus you need to be clear in what part of your Boston matrix is your brand and price offer credible.

  • You may also wish to determine how much first line flexibility in prices you want to give your sales force.  I would contend that unless you have good CRM systems or segmentation this is challenging as you may be discounting to customers whose lifetime profit is low and ignoring those in the opposite position
  • Don’t ignore transfer pricing either – if your organisation cross charges for goods and services, make sure they do not constrain you

Pay-offs:

I appreciate the above process is quite qualitative, but that is only because as a step this is using the outputs from earlier stages and asking you to write down your strategy with pay-offs in the following areas:

  • You will know the price elasticity of your customers
  • You will have a price strategy / actual price that you can then research how best to present to customers
  • This will then inform how you discount your prices and where you do so e.g. front line responsibility
  • It will also, off the back of your value engineering, have identified internal areas to target i.e. low value high cost impacts on your price position
  • You will price according to market attractiveness and in the context of your enemies and your own offer strength

Pricing is a difficult and wide-ranging topic that covers not just core price but also discounts, offers and so on.  In this field more than any other identify your RACI early in the process to define who is doing what.  Your P&L owners will be the ultimate owners and they must have the final say.  This is unlikely to be marketing, so be relentless in trying to get a good deal you can communicate to customers, but acknowledge that in some cases your business costs and performance may constrain you .

I hope you enjoyed this post and found it a prompt for how you may look at pricing differently.

Futurology is the final step in the Customer Review … see you next week !

Paul

25 April 2013

Price Image : Copyright (C) F. J. Cahill & Son Ltd., 2013

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Enemies or Competitors? Step 4 in developing a marketing strategy

Assessing competitor strengths and weaknesses is essential and this is an activity that, by its breadth, you can use to bring your entire team into your strategic planning, allow them to ‘own’ some of your enemies, ask them to be your eyes and ears throughout the year so you can complete this step in developing your marketing strategy quickly and without having to start from scratch.

I used to work for a brand that had enemies, not competitors.  I used to play rugby and I did not have competitors, we had competition and we worked out how to beat each team we played (as well as focussing on what we were doing of course).  Enemy vs competitor.  Enemy is a bold word, and I don’t mean to imply that what marketers do is in any way similar to what ‘States’ with enemies or fighting forces face in battle.  For me, it’s a subtle change in mindset that sets you out on a winning strategic direction.

A quick recap on where we are up to : Strategy starts with thinking, and then moves into delivery.  I call the thinking stage ‘Customer Review’.  I have covered the first 3 of 7 steps already;

  1. Customer insight ✓
  2. The marketplace ✓
  3. Critique the current strategy ✓
  4. Identify and critique your enemies
  5. Critique your current/planned offer in detail: Product / Service / Channel
  6. Pricing Review
  7. Futurology

(4) Identify and critique your enemies

Purpose:

  • To identify the strengths and weakness of those companies your target customers see as alternatives to you (crucially this is a customer led view … not that of your Exec or Board – you have to be realistic and grounded in reality)
  • To identify areas where you can ‘beat’ those companies to the benefit of your target customers and your business
  • To identify the strategies they pursue in the same markets in which you play

Process:

  • Review the brand iceberg you have already developed to identify the strengths of your brand and use those as a rule to measure your enemies.  I am making the basic assumption you know who they are !
  • Review your MI – which brands are you losing customers too?  Where are your customers coming from?  Over indexing in either version tells a significant story about who you should be concerned about
  • Review market research to see who is growing – and then marry that to spend, advertising changes etc.  The Annual reports and accounts of companies should be reviewed – they are a mine of useful strategic information and show you areas of growth and decline by brand
  • Understand your SoV and SoM – are they correlated?  Then do the same for your identified enemies.  Finally review what differences there are in: spend, strategies, propositions, balance of ATL to BTL to digital etc
  • Use the information your media planners and creative agencies have on market changes and channel strengths/costs.  Ask them to complete the matrices below independently of you – see if they hold the same views.
  • You must also use your regular monthly competitor reviews to identify who is winning – who is weak? could you target them? If they are regional, could you over-invest in marketing in that region for example by using proximity outdoor with targeted messages  e.g. find who is at the bottom of the service scores and then use service messages in proximity to their branches / heartland
  • … But you need to try to be scientific about your assessment;

Portfolio Tool

Portfolio Analysis Tool

Portfolio Analysis Tool

Marketing/Product Strength Scoring tool

Marketing Offer strength scoresheet

Marketing Offer strength scoresheet

You have a market assessment already as regards attractiveness & you now have one for product/marketing offers. Simply start plotting the scoresheet outputs to sense check your customer strategy vs that of your enemies in the same market.

  • You must ask customers what they think about you and your identified enemies – do they see them as your competition for example.  Do this when you have the matrix views
  • Ask your suppliers for a view on what you could do better and what they think your enemies do better than you – and ask then to identify why they think that.

Pay-offs

  • A list of, and assessment of, your top 3 to 5 enemies
  • A list of learnings about what they do differently – and how you can use this information
  • A good idea of who your customers like – as well as yourself of course !
  • A sense of what the trends in the market(ing) are
  • A detailed view of SoV, SoM and the strategies that have driven growth and decline amongst your enemies
  • A view on which enemies might be vulnerable in a manner that you can exploit

This is a crucial step in developing your strategy and as ever I hope you find my thoughts useful.  One option that I saw on a visit to a subsidiary of one of the brands I worked for was interesting – they had a strategy room and the walls were covered in the marketing material and press cuttings of their enemies.  There was none of their own work.  They used this environment to make sure they were critical of their own efforts and to see what customers saw.  I like that a lot, it’s tough though – I think they had enemies not competitors !

Paul

13 April 2013

Thanks as ever to the teams that have helped inform my views, & Messrs Fisk, Davidson, McDonald and Kotler

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