Nine Signs Your New Product Pricing Is Doomed

Psychologists say that when we meet someone new, we form our first impression of that person in just a tenth of a second. And other researchers have found that the effects of a first impression tend to influence all our future interactions with a person.

Something very similar happens when people encounter a new product or service for the first time. That’s why businesses pay so much attention to a product design, packaging, branding and advertising.

But there’s another aspect of a product that can also have a huge impact on a product or service’s first impression. And because this is PricingBrew, you’ve probably guessed by now that we’re talking about its price.

It’s particularly difficult to price an offering effectively when it’s brand new to your company and to the market as a whole. After all, if there are no other products like yours, you don’t have any existing data to use as a basis for pricing decisions.

All too often B2B pricing professionals are brought into the new product development process very late in the game, and they aren’t given the information they need to come up with an effective pricing plan. In some cases they may be expected to implement a pricing strategy developed by the product management team. That strategy may based on little more than an internal poll of what everyone in the office thinks the product should cost.

Looming product release deadlines and pressure from other parts of the company can make it seem tempting to take shortcuts and base a new product’s price on educated guesses rather than doing the hard work required to create a value-based pricing plan. But you only get one chance to make that first impression—do you really want to leave it up to guesswork?

Here are nine signs you’ve taken the wrong approach to pricing a new product:

  1. No value-based approach. A value-based approach means developing a hypothesis about how your product will deliver value to your customers, testing that hypothesis with research, analyzing how your value stacks up to the alternatives, crafting a “value story,” and telling that story effectively first to the sales team and then to the customers through your advertising and marketing. If you’ve skipped any of those steps, you could be headed for trouble.
  2. Internal perspectives only. No matter how well your internal experts know the market, their opinions can’t substitute for input from actual customers.
  3. Relying on too few customers. If you create a product and pricing strategy based on conversations with one or two customers, you may end up with a product that has a total market of only one or two organizations.
  4. No competitive alternatives. Even if there is nothing else like your product on the market, customers always have the option of doing nothing. Buying decisions are always competitive, so you have to make an argument for why your products and services provide better value than any alternative.
  5. Weak, shallow value story. A good value story isn’t really about your product—it’s about the customers. To be effective that value story must be based on a thorough understanding of their needs.
  6. Lack of basic segmentation. Every product provides a different level of value to different types of customers. If you’ve developed a one-size-fits-all pricing strategy, you’re probably leaving dollars on the table.
  7. No thought to takeaways. There will always be a few customers who ask for a lower price as a negotiating tactic. Give your sales team something they can take away from the product package in order to justify a lower price.
  8. Incomplete sales training. Your sales team doesn’t just need to know the speeds and feeds of the product, they need to understand the value story so they can present it to customers effectively.
  9. Lack of evidence and proof. Most customers aren’t just going to take you at your word when you say this is a fair price. Give them the documentation they need to prove the value of your offering to themselves and to their bosses.

 

 

Dynamic Pricing and Price Discrimination: What’s the Difference?

Price discrimination and dynamic pricing are often used in the same sentence, and for good reasons. They both involve changing the prices of various products, so many consider the practices one in the same. While dynamic pricing is a form of price discrimination, it is not executed in the same fashion. As a matter of fact, both practices actually have very little overlap.

What Is Price Discrimination?

Price discrimination is the practice of selling identical goods or services at different prices. It can often be classified in three degrees:
First degree: Using different prices to discover the maximum price you can charge for an item. Sending different prices in emails to consumers to see which ones garner the most attention is one way of doing this. This form of A/B testing can help you set your own demand curves.

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Second degree:Changing the price of goods when the quantity changes. Often practiced when bundling products, it’s also a good way for retailers to move extra inventory. Customers are often incentivized to purchase more when second degree price discrimination is at play.

Third degree: This is the most controversial type of price discrimination practiced by retailers. When practicing third degree price discrimination, retailers segment prices according to market segments. For example, some retailers will charge more for online shoppers who are farther away from a brick and mortar location.
Most professionals mix up the third degree with dynamic pricing, but it is simply not true.

What Is Dynamic Pricing?

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Dynamic pricing is the practice of setting a flexible price on a goods or services. Dynamic pricing typically changes prices according to three different factors:

Internal metrics: If a retailer is unhappy with their conversions or traffic on their site, a dynamic pricing strategy enables them to change the prices of their products until a certain rate is reached.

Market Factors: If the demand for a product has drastically increased, or their store has gained a lot of visibility, a dynamic pricing strategy can increase their prices to capitalize on the increased demand.

Competitors: A dynamic pricing strategy can be used to change prices to keep up with competitors. Retailers can choose to either match a competitor, or stay above/below their prices by a certain percentage or dollar amount.
These changes affect their entire store for every customer that visits. It is not repriced according to market segments or type of customer that is visiting.

The Difference Between The Two

Price discrimination focuses on price changes based on individual shoppers’ demographics, whereas dynamic pricing changes prices with fluctuations in demand and the competitive landscape. The only similarity between price discrimination and dynamic pricing is the ability to change prices based on customer data.

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In many instances, price discrimination provides users with very different prices.  For example, a retailer was once kept track of the IP addresses of shoppers to determine if they were shopping with a Macintosh or a PC, and would offer a higher price to the Mac user (as they tend to spend more than PC users in general). Dynamic pricing does not take these kinds of metrics into consideration. Instead, it changes prices for all shoppers to stay competitive and capitalize on high demand opportunities.
Price discrimination is legal, but it needs to be practiced properly. Instead of pricing based on shoppers’ demographics, retailers should consider pricing based on market changes. It increases competition, and could even benefit the shopper. Retailers need to walk a fine line between the two to make sure they are not slapped with an antitrust violation. Capitalizing on demand with a dynamic pricing strategy is the best way to stay ahead of the competition today.

 

 

http://blog.wiser.com/dynamic-pricing-and-price-discrimination-whats-the-difference/

Retailers need to wean UK shoppers off their diet of discounts, says report

Retailers need to shift customers off discounts to improve margin and trust, according to a white paper produced by KPMG and Ipsos

  • Discounting has become the norm following the recession, leading shoppers to become hooked on bargains
  • The internet helps shoppers check and compare deals
  • Discounting can damage a consumer’s perception of brands and retailers

UK customers today expect a bargain when shopping, a trend which has been exacerbated by the recession and price checking online.

But the KPMG and Ipsos Retail Think Tank (RTT) white paper said discounting cannot be a permanent strategy as margins can only be squeezed so far. The white paper also said consumers now know where to search for a bargain and are willing to wait for the best offer.

Richard Lowe, head of retail and wholesale at Barclays, said: “As a consequence, shopper behaviour has changed intrinsically, leaving many retailers with the conundrum of how to satisfy consumers’ insatiable need for a bargain whilst maintaining profitability. After all, margins cannot be eroded to the point where retailers are unable to stay in business.”

Maureen Hinton, analyst at Conlumino, advised retailers to have a “well-structured price architecture, where first price is the right price. And a planned discount strategy.”

Consumer trust

Retailers must look to wean shoppers off their diet of discounts, not only to improve margins but also to improve consumer trust, the report stated.

Dr Tim Denison, director of retail intelligence at Ipsos Retail Performance, said: “Dropping prices can introduce doubt and suspicion, encouraging thoughts such as: ‘I must have paid over the odds before’, or ‘perhaps they have changed the formulation or container size’. Discounting plants the focus on price rather than a product’s functionality or a retailer’s differentiation.

“The danger is that the shopper’s fixation on price distances decision-making away from other attributes such as quality or personal relevance. Ultimately it can damage a retail brand if they have nothing else of value to offer customers other than low prices.”

Martin Newman, chief executive of Practicology, agreed. He said continual discounting can only erode margin and brand equity.

“In my opinion, it also erodes trust. Consumers begin to question whether RRPs are genuine. Therefore, it can be strongly argued that discounting is a race to the bottom.”

Newman also pointed out that Black Friday 2014 demonstrated that “retailers who held their nerve and didn’t take part fared well in terms of Christmas demand as well as margins and profitability”.

Economists argue that now is the right time for retailers to wean their customers off bargains, as consumer confidence is at a 12-year high.

http://www.retail-week.com/city-and-finance/retailers-need-to-wean-uk-shoppers-off-their-diet-of-discounts-says-report/5074631.article

CRTC to force Rogers, Telus and Bell to charge less for domestic roaming

CRTC fosters sustainable competition, innovation and investment in the wireless services market

May 5, 2015 – Ottawa–Gatineau –Canadian Radio-television and Telecommunications Commission

The Canadian Radio-television and Telecommunications Commission (CRTC) today announced measures to ensure that Canadians benefit from sustainable competition among wireless service providers, as well as continued investments in high-quality networks. In particular, the CRTC will regulate certain wholesale rates that Bell Mobility, Rogers Communications and Telus charge other Canadian wireless companies.

To provide mobile wireless services to their customers, companies enter into a wide variety of wholesale arrangements. The rates, terms and conditions under which wireless companies, in particular smaller carriers, are able to obtain wholesale services are critical to their ability to offer competitive retail services.

Wholesale roaming

The CRTC has found that there is an insufficient level of competition among the national wireless companies – Bell, Rogers and Telus – in the provision of wholesale roaming services. These companies can maintain rates and impose terms and conditions that would not prevail in a competitive market. Other Canadian wireless companies need to obtain these services under reasonable rates, terms and conditions in order to offer comparable broad or national wireless coverage to their own customers.

As such, the CRTC will regulate the rates that Bell, Rogers and Telus charge other companies for wholesale wireless roaming services. The CRTC has set interim rates for these services effective today, and is requiring the three companies to file final proposed rates by November 4, 2015.

These regulated wholesale rates will facilitate sustainable competition in the wireless market that will provide benefits to Canadians, such as reasonable prices and innovative services. They will also ensure that the wireless carriers continue to invest in high-quality networks.

Roaming caps

In June 2014, Parliament amended the Telecommunications Act to cap wholesale wireless roaming rates in Canada, while the CRTC conducted its public consultation. In light of today’s decision, the CRTC recommends that Governor in Council repeal this section of the legislation to allow the return to market forces for the provision of all other wholesale roaming services as soon as possible.

Other matters

The CRTC is also taking action to reduce barriers, such as removing certain restrictions in wholesale roaming agreements, faced by mobile virtual network operators to give them more flexibility in their commercial negotiations with wireless companies.  These operators can play a role in increasing choice and value for Canadians in the marketplace.

Finally, the CRTC will use its current processes to deal with issues related to the tower and site-sharing arrangements between wireless carriers. Tower and site-sharing agreements enable wireless companies to install their own equipment on another carrier’s tower or site and deploy their networks in a cost-effective and efficient manner. These agreements also minimize the number of towers in Canadian communities.

Today’s decision follows a public consultation, which included a public hearing that was held from September 29 to October 3, 2014.

Quick Facts

  • The CRTC has found that, under current market conditions, competition in the wireless market is likely not sustainable.
  • The CRTC will regulate the rates of the national wireless companies, Bell, Rogers and Telus for wholesale roaming services they provide to other carriers.
  • In light of the measures the CRTC is taking, it is recommending that the Government repeal the legislated roaming caps that remain in place.
  • The CRTC is taking action to reduce certain barriers faced by mobile virtual network operators.
  • The CRTC’s current processes are sufficient to address tower and site-sharing issues related to the rates, terms, and conditions of agreements.
  • The CRTC is fostering sustainable competition, innovation and investment in the wireless services market so Canadians can have access to increased choice.

Quote

“With more than 28 million subscribers, the wireless sector is of tremendous importance to Canada’s economy. Innovation that leverages the use of wireless networks now forms part of our daily life and the important role of wireless technology increases each and every day. With microcomputers that fit in our palm, pocket or purses, we can do our banking, check up on our kids or elderly parents, apply for jobs, register for Government services or stay in contact with our friends, co-workers or clients. The measures that we are putting in place today in the wireless market will ensure that Canadians continue to have more choice as well as innovative high-quality services.”

Jean-Pierre Blais, Chairman of the CRTC

http://news.gc.ca/web/article-en.do?nid=970879

 

Chatr Wireless expands national presence, introduces new plans with lower data costs

 

Chatr, the Rogers-owned flanker brand that in 2010 was hastily set up to take down Wind Mobile and Mobilicity by leveraging the much-stronger Rogers network, has grown into a fully-fledged wireless brand.

After introducing data add-ons in February, Chatr has since dropped the zone requirements for all but one of its plans, allowing anyone in Canada, Kamloops to Cape Breton (assuming Rogers offers service there) to sign up for Chatr. Rogers claims there are now 200 cities in which to purchase Chatr plans, expanding from the urban-centred pool of Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa and Southwest Ontario. The prepaid plans are expected to be sold in retailers like Walmart, Best Buy, WOW Boutique and all the Glentel-owned locations.

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The company has also significantly lowered its data add-ons, extending them to the $40 plan as well. Previously, the $40 plan, which includes unlimited international text messages, only had the option of adding 200MB for $10 per month. Now, the data plans, which can be activated on either the $35 or $40 tier, align more with Rogers’ recent pricing strategies:

  • 500MB / $10
  • 1GB / $15
  • 2GB / $25
  • Data overages are unchanged at $25 per 250MB, or $100 per gigabyte

Also included in the new plans but for the $20 local talk plan, which is still limited to the seven aforementioned zones, is a feature called International Talk Saver. Chatr claims that users will be able to call some countries for $0.01 per minute, such as Puerto Rico and Singapore, though most locations I checked were in the $0.03 to $0.30 range. Calls to China and India are now $0.02 per minute, while U.S. calling rates are unchanged at $0.20 per minute.

Chatr’s chief, Raj Doshi, who also runs Fido at Rogers, said in a release that the goal of this new Chatr is to make national access cheaper while extending international calling options to Canadian newcomers “without purchasing a calling card.”

“For many who are entering a new chapter in life, setting up a mobile phone is often the first step they take, and chatr gives them an easy experience so they can get started,” he said.

Chatr’s new plans are now live, though its anemic range of cellphones for purchase remains the same.

 

http://mobilesyrup.com/2015/05/05/chatr-expands-national-presence-introduces-new-plans-with-lower-data-costs/

 

LET YOUR CUSTOMERS SEGMENT THEMSELVES BY WHAT THEY’RE WILLING TO PAY

Charging different customers different prices for the same product is tricky. Here’s how it’s done.

The late Sir Colin Marshall, when he was CEO and chairman at British Airways (BA), knew that success in his business came down to superior value capture. In a 1995 interview with HBR, he summed up the opportunity brilliantly: “You’re always going to be faced with the fact that the great majority of people will buy on price. But even for a seeming commodity such as air travel, an element of the traveling public is willing to pay a slight premium for superior service …. In our case, we’re talking about an average of 5%. On our revenues of £5 billion, however, that 5% translates into an extra £250 million, or $400 million, a year.”

If you’re out to capture more value, one surefire tactic is to figure out a way to charge different prices to customers with different willingness-to-pay (WTP). Economists sometimes call this “price discrimination,” which sounds bad since discriminating against people is generally illegal, not to mention immoral. However, most of us encounter forms of price discrimination frequently that don’t bother us. For example, who begrudges the discounts afforded to senior citizens and students? (Well, all right, I have occasionally felt a tinge as I see my retired neighbors driving much more expensive cars than mine.)

But charging different customers different prices for the same or a similar product or service is tricky for reasons having nothing to do with ethics. First: it is not easy to identify and group customers according to their willingness to pay. Second: if you have different prices in the market for a similar product, there is no preventing your well-heeled customers from taking advantage of the lower prices, too. Often, a marketer will try to scoop up sales from more price-sensitive shoppers (without cutting margins for its best customers) by launching a second, lower-end “fighter brand.” But customers are smart, and this often invites another serious problem – indeed called by one of the scariest terms in the management vocabulary: cannibalization.

There is an elegant solution to this problem, which I call “self-segmented fencing.” It consists of two parts: (1) Customers reveal their willingness-to-pay through self-segmenting, which is to say they themselves choose either the high- or low-price offer; and (2) Arbitrage is then prevented through effective fencing – that is, customers with high willingness-to-pay are fenced off from the low-price offer.

A fabulous example of this strategy is couponing. Grocers could simply offer the same attractive price to everyone, but instead they invite customers to present coupons to cashiers in order to get discounts on certain products during certain time periods. Why is this beautiful? Because many shoppers can’t be bothered to search for, collect, and redeem coupons. Therefore, they effectively choose to pay full price. Frugal shoppers and families living on small budgets are more likely to make the opposite choice, self-selecting to participate in the lower-price offer by using coupons and even shopping specifically for products that are on sale. In this example, the coupon is the “fence” to identify the segments and discriminate the price.

Once you understand fencing, you see fences everywhere. Famous fashion and sporting goods brands, for example, fence premium buyers by putting 50 or 100 kilometers between their flagship stores in the city and the outlet strips where they sell previous and even current-season models for huge discounts. And, back to Sir Colin’s business, fencing goes on left and right with airplane seats. It’s hardly a random occurrence when a roundtrip price comes up much cheaper and there is a Sunday between the outgoing and incoming flight. That fences off the majority of business travelers, even (or especially) if they fly economy class. Another fencing mechanism is tickets with no flexibility for canceling and rescheduling flights. (If you are like some clever participants in seminars I’ve taught, the thought might be occurring to you that a fully refundable ticket is really a different offering than a nonrefundable ticket, and therefore, doesn’t constitute fencing but simply selling different products at different prices. It’s a valid point, but given that the price difference is sometimes over 400%, it is certainly not based on cost considerations. What the airlines want to do is fill underutilized planes with cheap tickets that are unattractive to high-paying customers.)

Once you begin to see the elegant workings of self-segmented fencing all around you, you might begin to see opportunities to use it in your business. If different customers are willing to pay different prices by choosing, for example, to pop into your flagship store or trek all the way out to the outlets, why not let them? However, because there is never a free lunch, this strategy requires a very good understanding of what customers really want and how segments differ from one another. The bigger picture here is, of course, that value-based pricing always requires a solid and sophisticated understanding of what customers value.

Finally, remember that fences are most powerful if they give even as they take away. Premium customers should enjoy at least one important attribute that the low-price-seekers don’t get. The grass should never look much greener on the other side of the fence.

Stefan Michel is professor of marketing and service management at IMD and director of IMD’s EMBA program.

 

This piece originally appeared as a blog post on Harvard Business Review.

http://www.imd.org/research/challenges/TC027-15-customer-segmenting-themselves-stefan-michel.cfm