What is the ‘right’ price for your product?

What is the ‘right’ price for your product?

 

This is one of the most common questions asked, particularly when configuring a new product.

The ‘right ‘ price will be the pricing model that delivers superior value to customers while delivering optimal returns to the seller.

Developing a pricing model involves a series of strategic and market driven choices. Packaging, high Vs Low, the channels used, marketing collateral deployed, shape of your business model, identification of your ideal customer, and a host of other factors that make up the ‘marketing mix’.

However, despite most of us knowing these things, typically price is set on a cost-plus basis, mixed with what others are charging for the same or similar/substitute product.

For an entirely new product, it is a guessing game that has potentially serious consequences. At one end you kill the product, at the other, you leave money on the table.

Dutch economist Peter van Westendorp introduced a method that ended up being named for him in 1976. It has been used sparingly since, but not as widely as it should be.

It is a simple and reasonably reliable method to determine the ‘right’ price for a product or service.

There are four questions that will set your price ‘guidelines’:

  • At what price would it be so cheap that you would question quality?
  • At what price would you consider the product to be a bargain?
  • At what price would you start to think the product is getting expensive, but you still might consider buying it?
  • At what price would you consider the product to be too expensive, and you would not buy it?

Analysis of the responses will give you the point at which you are attracting the most customers who make the trade-off between buying intention, price, and quality perceptions. Putting this on a simple two-dimensional chart makes explanation easy.

Header courtesy Wikipedia

 

 

Colesworth: Is it collaborative gouging or ruthless collaboration by oligopolies.

Colesworth: Is it collaborative gouging or ruthless collaboration by oligopolies.

 

 

Collaboration between competitors is illegal, but tough to prove. It is also the natural state of affairs in an oligopoly.

When a competitive market evolves over time into an oligopoly, the focus of management attention of the remaining oligopolists moves from the customer to the competitor. With the resources available to an oligopolist in any decent sized market, they will know in considerable detail the strategies, internal processes, pricing, and resource allocation choices made by their competitors almost as quickly as they happen.

Supermarket competition in Australia has evolved in this manner. It has turned from ruthless competition for customers 40 years ago, to ruthless collaboration between the two major players now.

Collaboration is illegal, and I am sure that the leaders of the two supermarket gorillas are not setting prices together, or collaborating in other ways that would be contrary to the competition laws in this country. However, given there are only two of them, and they have the resources to watch the other very carefully, there is a sort of quasi co-operation that emerges.

It is driven by the commonality of their activities: The need for shareholder returns, driven by market share acquisition costs, both fixed and variable. They work aggressively on both, and if they did not, the senior management would be fired. In addition, directors have legislated fiduciary responsibilities under the Corporations act in relation to shareholder interests and importantly, returns.

We must also remember that via our superannuation funds, we are all shareholders in Coles and Woolworths.

Once again, just like the ‘housing crisis’, we have short term populist press release driven band-aids being suggested. They are touted as the remedy for long term strategic choices made in the past that to some, have turned sour.

The time for institutional concern about the increasing power of supermarket chains was when they were assembling the scale they now have. All of the take-overs and mergers that have happened have been waved through by the ACCC. This is despite commentary at the time about the impact of the lessening of competition for the consumers dollar.

Now it is too late, other remedies must be found, which do not include a forced break-up. Apart from the immorality of retrospectively applying new rules to the conduct of business, there is no logical or practical way to break apart either of the supermarket chains.

We should stop bleating, and get on with life, while ensuring we do not make the same mistake again.

Header credit: Gapinvoid.com. The cartoon put a huge amount of meaning into a simple graphical form. Thanks Hugh!!

 

 

 

 

Is Taylor Swift the greatest marketer of the last 20 years?

Is Taylor Swift the greatest marketer of the last 20 years?

 

 

There are many contenders from around the globe for the mantle of ‘GOAT”, or at least of the last 20 years.

The obvious choice might be Steve Jobs, whose single-minded pursuit of all the factors that coalesce into great, long lasting, and commercially effective marketing culture is unparalleled.

You might nominate Elon Musk. He reshaped the auto industry worldwide, made batteries sexy, and figured out how to create a reuseable rocket, before imploding by renaming Twitter ‘X’.

How about Jeff Bezos who figured we would buy books online and turned that idea into a retail behemoth that has reshaped markets.

Some might add the foul mothed Gary Vaynerchuck to the list, whose ability to promote himself while talking about himself is unmatched.

Then there is a small number of genuinely original marketing thinkers and academics: Seth Godin, Mark Ritson, Byron Sharp, Roger Martin, and Scott Galloway.

Add in a few hands-on practitioners like Angela Ahrendts, Richard Branson, Marc Pritchard, and a trio of Aussies who changed the world, Melanie Perkins, and the Atlassian duo of Farquhar and Cannon-Brookes (whose core values include ‘don’t F%@k the customer’) and you have a good list.

However, my nomination would be from outside the usual ‘who is the GOAT’ box. It is a 34-year-old musician, songwriter, entrepreneur, and publicity machine, who has added tens of billions to the GNP of the US.

Taylor Swift.

I could not identify one Taylor Swift song, and I do not know if she even has any musical talent, but she certainly is a truly great marketer!!

To have the world talking about you, (even a 72-year-old bloke in a blog post) to have massive fan clubs of ‘Swifties’ salivating over every new piece of iconography, hordes fighting to pay eyewatering amounts to get nosebleed seats in a 100,000 seat stadium, takes some talent.

What makes her so great? Indeed, what are the common characteristics of all those in the list?

  • Understands who her customers are, and applies relentless focus. Swifts core market is young women and girls. She has demonstrated mastery in engaging with that audience with the music, visual extravaganza, and personal storytelling that resonates. She is also a powerful role model, encouraging independence, ambition, creativity and determination, emotions to which those in her market all aspire.
  • Consistently creates value for customers, individually. It seems the ‘Swifties’ out there all see Taylor as someone they easily relate to personally, across a wide range of channels and media. She is consistently delivering experiences, based on the music and extravaganza shows, but supported by all sorts of adjacent activities, such as having Kobe Bryant, a superstar in his field, come on stage at a concert and wax lyrical about her kindness, generosity, and ‘grounded’ personal values. She tells Swifties what they want to hear, and even their parents have trouble arguing!
  • Is ‘the only one’. Marketing success is an outcome of meticulous attention to detail, and the communication of all those details in a package. It requires two types of activity that is an extremely difficult mix to get right. On one hand, you need to ensure ‘activation’. The calls to action that today generate the motivation to spend money to be a part of the party. On the other, it requires that long term investment be made that build a brand, an identity that engages and creates a long-term platform from which the activation and short-term revenue generators are launched. When done well, as in this case, there will be ‘only one’. Where else can a teenage girl find the excitement, engagement, communal vibe she gets from being part of a ‘Swiftie’ fan community?
  • Swift applies compounding leverage. Taylor has executed a masterful commercial strategy. Unlike almost all other entertainers, she has retained control of everything, and runs the whole shebang as the CEO of a large, volatile and very complex business entity. Her uncanny ability to generate ‘Buzz’ around everything she does, which is spread by wildfire word of mouth and unpaid media enables a continuous stream of ‘Swift-news’ which has fans hanging out for more. She provides the creativity, leadership, and alignment most CEO’s can only dream of across the diverse range of activity her business embraces.

Swift is touring Australia, starting later this month, with multiple sold out shows in Sydney and Melbourne. The hype is becoming all consuming: you even have to reserve a spot in the line to pick up your merch and get to the cash register at the exit of the ‘pop-up’ merchandise stores.

Header illustration is via DALL-E, everything else is ‘organic’

 

4 crucial questions to unlock the power of your advertising.

4 crucial questions to unlock the power of your advertising.

 

 

Last week I provided a template for a Customer Value Proposition. The template works well, but ‘Customer Value Proposition’ is a piece of marketing jargon which just means making a promise to your customers.

This presupposes that you actually know who your ideal customers are, and what sort of promise would be attractive to them.

In the January February 2024 Harvard Business Review there is an article called ‘The right way to build your brand‘ written by Roger Martin and two Co-authors. The article sets out research that proves the hypothesis that making a specific promise to customers is more attractive than a generic claim of some level of excellence. The specific promise is about the benefit a customer will receive with use of the product. A generic claim to greatness is just about the product.

It does not surprise that the first is more powerful than the second.

‘Your promise is your strategy’ is a sub headline towards the end of the article. When you think about it, the observation must be right. Strategy is a process of influencing factors over which you have no control in such a way that the subsequent behaviour of the customers benefits your enterprise rather than an alternative. Making a promise of performance in delivering an outcome desired by a customer is about the strongest driver of short-term behaviour I can think of.

Delivering on the promise, will build trust.

Right at the end the authors ask four crucial but simple questions that can be used to determine if a proposed advertising campaign is worth investing in:

  • Is the campaign based on a clear unambiguous customer promise?
  • Were customer insights used to identify a promise the customers value?
  • Is the promise framed in a way that is truly memorable?
  • Were product marketing, sales, operations, and customer service involved to ensure the promise will be consistently fulfilled?

To me, this sounds like a comprehensive framework by which to decide if a proposed communication campaign is a worthwhile investment.

 

 

 

 

A simple template for a killer Value Proposition

A simple template for a killer Value Proposition

 

Almost everyone has trouble with this most basic of marketing jobs, articulating your ‘Value Proposition’. It is a simple statement of the benefit a customer gets from using your product, rather than an alternative.

Internally it also plays a role, in aligning staff and other stakeholders to a common purpose.

For …………….. (your ideal customer)

Who……………..(define the specific need, pain point)

Name……………(of the service or product)

Provides…..…. (The key benefit)

For example, the simplified Value Proposition for StrategyAudit might be:

For small to medium manufacturing business leaders,

Who do not have the resources to hire deeply experienced management,

Allen Roberts from StrategyAudit,

Provides that deep experience across all functional areas of your business on an ad hoc, part time, project, or on-call basis that is guaranteed to lift your profitability.

This simple template works well for just about any product or service.

It forces you to articulate why your ideal customer should deal with you rather than an alternative, and the value they will derive from that choice.

Generating the best possible value proposition is an iterative process. Rarely do I see the ‘perfect’ one emerge quickly. Often there are several that look OK, which can be tested and improved.