Archive for the ‘Pricing Strategy’ Category
Friday, June 20th, 2008
Director Matt Harrison spent a year in China, setting up the B2B International office in Beijing in January 2007. Here, in his second Thursday Night Insight post, he reflects on the wonders of rickshaw travel and what it taught him about the value of market research.
It was snowing and minus 10 degrees. It was dark. I had tonsillitis. I also had 3 boxes of belongings that had just arrived from England and they needed to be taken to our apartment. This shouldn’t be a problem because taxis are everywhere in Beijing. In fact if you walk across the road there’s probably an 80% chance that the car that kills you will be a taxi.
So I tottered down from the office with 3 huge boxes shielding my line of vision, confident of finding an immediate lift home. And I was right, there were lots of lifts home…the problem was that as soon as anyone saw me staggering towards a taxi whilst carrying my own weight in boxes, they ran in front of me and took the taxi for themselves. Again…and again…and again, I would see a taxi, head for it and get beaten to it.
This distressing ritual lasted twenty to thirty minutes, before I eventually decided I’d have to start walking home. Within a couple of minutes, a moving oasis appeared on the horizon, in the form of a man with a 1930s bike-cum-rickshaw. It was comfortably the worst ‘vehicle’ I had ever seen, and it hardly had room for me let alone three boxes.
Cold, desperate and naïve, I decided to go for it – and what an experience! The poor rickshaw driver had to peddle like mad to tow one 75kg Englishman and half his belongings through the slush and rush-hour traffic. Shielded from the cold by one of those dust sheets you use when you decorate, my teeth were chattering, my hands were in serious danger of dropping off, my mouth was dry from the traffic fumes, and we were meandering with little progress…just think of the poor driver.
I eventually arrived home, my frozen tonsils coated in gasoline, my pulse fading and my backside glued to the rickshaw. However, one final indignity awaited me. Feeling so sorry and so thankful for the poor driver who had towed me through the ice and traffic, I offered him what I now know was three times the going rate for a ride from our office to home. He looked at me like I was a miser and demanded 50% more. Naïve and cold, and unable to think of anything other than a hot bath, I doubled my initial offer and apologised for getting my exchange rates confused.
I can’t really blame my driver for the happy look on his face as he peddled off with a week’s wages in his pocket. But, in retrospect, I really could have done with more information before making the purchase decision. Here at B2B International we hammer home the importance that understanding your market carries:
Point 1 – market assessment: I did not have enough information about the options available within the Beijing transport market, or how to make sure that I accessed the most appealing opportunities. As a result, my more knowledgeable competitors beat me to it, leaving me to make do with a poor substitute.
Point 2 – pricing research: I had no prior knowledge of the going rate within the market and so left myself open to uncertainty, confusion and overpaying!
Point 3 – segmentation: The shrewd rickshaw driver knew from years of experience that his offering appealed to different segments in different ways. Firstly there would be the tourists, who would often be foreign and could be charged a premium price for the pleasure of being immersed in Beijing life, with a commentary provided by a local expert. Secondly there would be the local commuters, uninterested in being immersed in local life or the local expertise of the driver, and simply wishing to get from a to b as quickly and cheaply as possible. This segment would be more price sensitive but larger in number. And finally, probably the smallest segment but without doubt the most lucrative – perhaps we could call this the desperate segment. This refers to customers who are buying a rickshaw ride as a distress purchase, because they know little about local conditions and are desperate to get from one place to another. By employing price discrimination between segments as well as tailoring the way he treated different customers according to their needs, my rickshaw driver instinctively knew that segmentation is at the core of marketing as it allows us to extract maximum value.
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Thursday Night Insight, Matt Harrison, Segmentation, Pricing Strategy, Market Research China, Market Assesment |
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Tuesday, April 8th, 2008
Last week’s episode of The Apprentice saw the two teams challenged to set up and run their own laundry business for 24 hours. Both teams had to go out and tout for business, wash and press the laundry to a high standard, and return all the correct items to their owners within the specified time limit. As usual, there were all sorts of mistakes made along the way which would serve as a warning to anyone in the world of business. But from a market research point of view, what was the lesson we can take from this week’s exercise?
Without any previous experience in the laundry trade, one of the keys to winning business in this task was getting the pricing structure right. The boys’ team wisely did their research straight away, ringing round several competitors to get a feel for the industry’s charging structure, and reaping the benefits immediately by winning a big hotel contract. Whilst the manager of the hotel in question had been expecting a quote in the region of £200, the girls’ team left him speechless by pricing its services at £5,000! This followed a conversation between the girls during which they all admitted that they had no idea what to charge, and so proceeded to pluck a figure of £4.99 per item out of the air. Why no-one showed even the slightest initiative in suggesting the need to research what pricing structure should be chosen, is beyond the comprehension of most people.
You might have hoped that, upon learning how staggeringly expensive their quote had been, the girls’ team would decide to do some pricing research, yet they carried on regardless. At their next appointment, they offered to wash a huge amount of filthy industrial workwear at the bargain basement price of £15. Even the customer could hardly contain his disbelief and amusement at the ridiculously low price. Needless to say, the boys’ team strolled to victory in this task.
Week One’s episode also demonstrated a lack of nous when it came to product pricing. In setting up competing fish stalls in a market, the girls’ team started to make losses from the word go. Before they had even had time to price up their stock, they were approached by customers wishing to purchase their wares. Desperate to get the ball rolling and some sales under their belts, some team members just asked the customers what they would be willing to pay for their produce. It doesn’t take a genius to work out that these early customers probably landed themselves some unbelievable bargains! The boys’ team, meanwhile, in its rush to get set up, mistakenly began selling lobster at £4.90 each (instead of a more realistic price of £4.90 per kilo). In their defence, it didn’t take the boys too long to head off to check out the prices offered by their competitors and to correct their mistake, but to some extent the damage was already done.
Pricing is never easy to get right, but the very last thing you should do is guess. Pricing research is vital in establishing what the market can bear, what pricing strategies your competitors have adopted and why, what quality perceptions a particular pricing structure will give, etc.
You can learn more about pricing in our B2B International white paper, The Problem With Price and in the article Research As An Aid To Optimum Pricing.
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Quantitative Research, Pricing Strategy, Market Assesment |
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Wednesday, January 2nd, 2008
First of all - A Happy and Prosperous New Year to all our readers!
Although New Year is typically a time to look forward to new events and experiences, we thought we’d break with that convention somewhat in our first post of 2008, by having a quick review of the year just gone on The Market Research Blog. With that in mind, here’s a quick rundown of our most popular posts from 2007, just in case you’re a newcomer to our blog or if you simply missed something we posted in the last year:
- Guerrilla Marketing - When Less Is More
- The Benefits Of Advertising
- Choosing A Logo
- White Paper: China and India -The Growth Debate Part 1 | Part 2 | Part 3 | Part 4
- Meeting the Needs of the Retail Industry
- Which Brands Have People Been Discussing This Week?
- Online Leadership Portal - Part 1 | Part 2
- Market Research - The Key To Business Success - Part 1 | Part 2 | Top Tips
- Go Figure - Pricing & Segmentation - Part 1 | Part 2 | Part 3 | Part 4
- Professional Services and Valuing the Customer
- The Market Research Industry in India - Part 1 | Part 2
- Will Television Advertising Arrest Starbucks’ Slumber?
- Logo Research - Approach With Caution
- The Benefits Of Online Research
- Are Brands Like Caricatures?
- Market Research Prices - A Global Comparison Part 1 | Part 2
- Marketing and Selling to Chinese Businesses Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7
- The Ultimate In Customer-Driven Pricing
- Do You Understand Your Customers?
- Ten Tips On Branding
From our point of view, 2007 was a big year of expansion for B2B International - especially in terms of getting our Asian office in China up and running as well as unprecedented growth at our central operations in the UK. Naturally, we’re hoping for bigger and better things in the year to come - and we wish you much the same.
We’ll get into the swing of things proper in the next few days with some more of our thoughts on market research, the universe and everything else!
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Qualitative Research, Pricing Strategy, Quantitative Research, Segmentation, Market Research India, SMEs, Online Research, Market Research China, Advertising Research, Market Research, Branding, Customer Satisfaction, Market Assesment, Esurveys, B2B News |
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Thursday, October 4th, 2007
Following on from our post last week - “The Ultimate In Customer-Driven Pricing” - we point your attention to an excellent post by Seth Godin on how pricing can change people’s perceptions of certain things. For example, Seth talks about the fact that people may not be aware of certain products and services that they are receiving until they start paying for them (even if it is just a nickle). Have a read….
For a nickel
The current Fast Company reports that when Ikea started charging a nickel for shopping bags, consumption went down by 50% (95% in the UK).
Clearly, it’s not the nickel.
The way you charge for something changes the way people perceive it. If the dinner special includes dessert, people get dessert because it’s ‘free’. Of course, it’s not free. You paid extra for the special, remember?
A la carte pricing focuses your consumer. It forces them to make a choice in a spot where they didn’t use to make a choice. It can highlight features that might have gone unnoticed (underbody salt removal treatment at the car wash, for example).
If you want people to notice a bit of consumption, charge for it. Even a penny.
If you want people to take something they had been leaving behind, give it away with purchase. Otherwise, they’re wasting.
Here’s one practical application. If you make something with low marginal cost like a CD, consider offering a second one (same title) for a nickel or a dollar. Why? Because if a customer buys a second as a gift, they’ve just helped you spread the word…
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Pricing Strategy |
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Tuesday, October 2nd, 2007
Rock band Radiohead have just announced that their new album will be released as a digital download with the fans being able to decide how much they pay for it. The band currently have no record label and as such, have no overheads in releasing the album – therefore every penny paid by the buyer goes straight to the band.
So far the NME website reports that people having been paying an average of £5 per album, meaning that the consumer is paying much less than they would normally pay in a traditional release. In addition to this, the fans know that all the money is going straight to the recording artist as opposed to the majority of it going to the record label big-wigs.
Have Radiohead kick-started a new trend? Can this kind of pricing be applied to other industries other than the music industry? Leave a comment below and let us know what you think.
An article on the Church of the Customer blog looks at this story in more detail – see below. For more information on pricing take a loook at our white paper - “The Problem With Price”.
A few years ago, we wrote an essay for Seth’s “Big Moo” on what the world might be like if technology and globalization overwhelmingly drove a significant number of prices to their ultimate price point: free.
Our scenario: what if “suggested retail price” disappeared, along with your ability to set prices?
Or, what if you allowed the marketplace to name its own price without negotiation?
The British band Radiohead is trying scenario two with its new album. On this website, you add the album to your cart; when you check out, you type in how much you’ll pay. That’s it. No argument, no negotiation.
You pay a buck to handle the credit card fee (alas, intermediaries always get paid), but it’s a cool experiment in economics for a band known for risk-taking.
For producers of digital content, I argue this isn’t much of an economic risk at all. The replication cost of digital files is basically zero. Radiohead has spent years cultivating a cult following, so the band has already reaped a handsome return based on the worldwide attention they’ve accumulated with this product-release strategy.
Of more benefit to them now is building a database of buyers, bypassing the information black hole of so many retail channels. That’s the value exchange.
And in a few months, Radiohead will partner with a label, which will manufacture a CD of the album. If the album is great (always a non-quantitative variable when it comes to art), it will have already created demand for the totem version of the album.
If scarcity isn’t your primary method for generating demand, then getting your product or service into as many hands, mouths and minds possible is. The ideas, products or services that spread the most usually win.
Today and more so tomorrow, that means letting go of the control you’re accustomed to.
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