Transcript Making Cents of Pricing Build business cases to enhance the bottom

Making Cents
of Pricing
Build business cases to enhance
the bottom line.
David M. Feldman
Jessica Lee & Dana Town
Expanding the Role of the
Marketing Department
 Traditionally provide insights into market
acceptance of new offerings and prices but
have little impact on building business cases
for changing prices
 Need to become more active in developing
pricing strategy
 Need to redesign their research studies to
reflect actual marketplace behavior,
incorporating inputs for all items in the
marketing mix
Traditional Conjoint
Experiments
 Focus on trade-offs between brands, prices,
features, and channels for leveraging customer
value propositions and developing pricing
strategies
 Creates an artificial marketplace by
underestimating the real impact of price and
price sensitivity
 Can prevent marketers from accurately
projecting how changes in the marketing mix
will affect the marketplace
Business Case
Development
 The key to developing a long-term pricing
strategy is to be able to report the information
collected from current and potential customers
in the context of overall profitability
 4 key components:
1. Determine the strategic and tactical issues to
support the business case
2. Develop a competitive marketplace
3. Determine marketplace sensitivities
4. Determine the impact of changes to the
marketing mix in terms of bottom line profitability
Developing a Financial Model
Key Issues
 Important to review with senior
management all of the relevant marketing
issues that affect costs and profitability
before designing the study
 How do I ensure that my pricing decisions will
support the overall long-term positioning of my
product?
 How do I determine the specific benefits for
which customers are willing to pay more?
 How can I develop and price bundles of
products/services to enhance overall
profitability?
Competitive Marketplace
 When focusing on pricing strategy, the survey
instrument must include actual market offerings
and prices
 Important to be able to model what the
respondents are currently purchasing based on
current prices
 Respondent needs to react to new offerings or
prices in the context of all the options currently
available
 Discrete choice experiment provides the best
analytical method for developing pricing
strategy
Marketplace Sensitivities
 Analyze customer input from survey and
convert into measures of price sensitivity,
brand loyalty, and channel and packaging
preferences allowing development of
segments
 Respondents with similar market
sensitivities helps marketers understand
the unique needs of market segments
Profitability Model
 In order to link survey results to current
market size and share, must first develop
a base case
 Base case – offerings currently in the
marketplace, at current prices
 Replicates known market shares
 Sizes the overall market in terms of total units sold
 Developing the base case ensures that all
projections are based on an agreed-upon
starting point
Conclusion
 Marketing departments have an
opportunity to elevate themselves and
become full business partners with the rest
of the organization in developing pricing
strategy
 The key is to link pricing studies to
relevant issues in developing the pricing
strategy
 Success with pricing can only elevate
research’s positioning in the organization
Sources
 Feldman, David M. "Making Cents of
Pricing." Marketing Management
(May/June 2005): 21-25. Rpt. in Annual
Editions: Marketing. Ed. John E.
Richardson. Vol. 08/09 New York, NY:
McGraw-Hill, 2008. 111-115