Winning Pricing Strategy is the talk I delivered at the 2nd Asian Annual Reserve Conference, KualaLumpur, Malaysia. Enjoy, if you have a question feel free to catc me......
VIP Call Girl in Mumbai 💧 9920725232 ( Call Me ) Get A New Crush Everyday Wit...
e-Commerce : Winning pricing strategy
1. 2nd
ASIA e-COMMERCE CONFERENCE
5 – 6 November, 2012 Malaysia
2. Suraj Mishra, 46
www.sg.linkedin.com/in/surajmishrasg
email: suraj.mishra.sg@gmail.com
24 years - financial services industry
Managing Director, Aprikot – Training & Consultancy
Ex-CEO, Prudential Asset Management - Singapore, UAE
and Malaysia.
MBA (Finance), B.Com (Hons), CFPTM, MFPTM, CWMTM
3. The
4Ps
Are Out
Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
4. ‘70 concept undergoing transformation
Started in 1960, made leading edge by Philip Kolter in 1967
The Four Ps thrived in a
different world.
It was a wonderful fantasy
world.
Marketers were king. Product
differences lasted.
Big, obedient audiences could
be reached with big, efficient
media.
Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
5. The
4Ps
Are Out,
The
4E s
Are In.
Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
6. What is the world of marketing today?
The consumer has seized control.
Audiences have shattered into fragments and slices.
Product differences can last minutes, not years.
The new ecosystem is millions and billions of unstructured one-to-one and
peer-to-peer conversations.
Product EXPERIENCE
Place EVERYPLACE
Price EXCHANGE
Promotion EVANGELISM
Source: http://www.ogilvy.com/On-Our-Minds/Articles/the_4E_-are_in.aspx
8. PURCHASE PROCESS
There have been three critical junctures within a customer’s purchase process where product
must be successful: stimulus, shelf, experience
At shelf In-store Experience
Stimulus First Second
Moment of Moment of
Truth Truth
This is the moment when an The consumer, driven by an (Experience) - Once home
advertisement/knowledge advertisement or knowledge, visits with the product, the
connects with a consumer in your office and the combination of consumer uses it and forms
such a way that pushes him or product packaging and salesperson an opinion of his or her
her to visit a start the claims, results in a purchase. purchase.
discussion.
Source: www.zeromomentoftruth.com
8
10. 1 Buyers aren’t relying on
sales people for
information before making
a purchase.
Customers are obtaining
2 more information of our
products and services, but
not the right kind.
11. NEW PARADIGM
The ZMOT introduces a “new” moment of truth to the traditional paradigm of the consumer
purchase process. A moment in which the social and collaborative nature of the Web becomes the
determining factor in a shopper’s decision making.
Stimulus
Stimulus First First Moment
Moment of Truth of Second Moment Moment
Second of Truth
Truth of Truth
Zero Moment of Truth
The ZMOT is now a more important factor to driving a consumer to purchase. This
means that shoppers care more about what other shoppers are saying than they
do about advertiser and retailer claims.
Furthermore, one person’s purchase experience becomes the next person’s ZMOT.
Source: www.zeromomentoftruth.com
12. NUMBERS
50% 49% 38% 38%
of consumers of consumers
of consumers
used a search talked with sought
comparison
engine to find friends/family information on
shopped online
out about the manufacturer
information product Website
31% 22% 22% 18%
of consumers sought read
read product information comments became a
reviews or from a following an friend, follower
endorsements retailer/store article/opinion , “liked” a
online Website piece online brand
Source: www.zeromomentoftruth.com
13. There are
000’s & 000’s
of websites all competing for your
customer’s hard
earned money
18. HUMANGEOUS market
No BOUNDARIES
PRICING dynamic
Shorter PRODUCT CYCLE
Customer’s EXPECTATIONS
Too much INFORMATION
Too much TRANSPARENCY
19. Global Online RETAIL Sector
TOTAL REVENUE CAGR
$530 bn* 15.4%*
* in 2011 * between 2007 and 2011
TOTAL REVENUE STORES
Forecast Revenue
$421 bn* 8500
in 15 countries
* in 2011
$1,096 bn
by 2016
TOTAL REVENUE Hypermarkets
1395 CARG 15.6% (2011 – 2016)
$120 bn* worldwide
* in 2011
The online retail sector consists of the total revenues generated through the sale of retail goods via online channels, valued at retail selling price. The
market values exclude travel and ticket bookings, online corporate purchasing, and online auction transactions. All currency conversions are
calculated using constant 2011 annual average exchange rates.
Source: Abstract of the Global Online Retail report by Market Research.com
20.
21. Please mouse-over the video to “play”.
This is a video clip from Google Analytical website. The video belongs to Google.
22. #1
SIMPLE. UPFRONT & NO SURPRISES
Mention the complete "out the door" costs. It should include the shipping
cost, additional taxes, marketing costs, payment process, ecommerce applications
and customer service.
23. JetSTAR
Expectation | Actual | Unhappiness
$178 X 2 = $356 | $636 less $60 food = $ 565 | $565 – $358 = $207
28. PRICING mechanism.
When it comes to pricing, the three key approaches that have been
most widely practiced:
Competitive Market Value Cost-plus
Pricing Pricing Pricing
Considers competitors Considers the
pricing for like goods currently accepted Starts from a basis of
within the market price by consumers. the seller’s cost of
space. The seller then The sellers maintain a goods then adds a
adjust prices to lure pulse of what the profit percentage to
market is bearing for arrive at a selling
customers, most
goods, and set their price. Also known as
often with a “lowest prices at, or very “markup pricing”.
price” appeal. near, to that target.
This is MATHS
29. PRICING Strategies.
Price Leader Price Matching Price
Undercutting
Lost Leader Close Out and
Sale Price
31. Professor Dan Ariely
Dan's talks on TED have been
watched 2.8 million times.
He is the author of “Predictably
Irrational” and “The Upside of
Irrationality”, both of which became
New York Times best sellers.
Professor of Psychology and Behavioral Economics
32. Cost of Zero
Please mouse-over the video to “play”.
This is a video clip from Duke University website. Copyright and ownership of this
video belongs to Duke University.
35. PRICING strategies.
The introduction of the internet has given rise to an
increase in the range and style of ecommerce
pricing strategies.
It is the oldest Pricing
Strategy.
Fixed price approach are adopted by offline The price remains fixed
businesses. for a certain period or till
goods last.
A fixed price minimizes
Offline business are also moving towards customers uncertainty
dynamic pricing. of a final price.
A dynamic pricing model involves varying the
prices of goods or services based on variables
such as season, availability and production costs.
36. DYNAMIC pricing.
The airline industry pioneered this model and it is now
used by other industries, including retail sales.
37. DYNAMIC pricing.
DYNAMIC pricing – Prices change or fluctuate due to different
variables, conditions, and situations.
Forces of DEMAND and SUPPLY. High demand increase price. Low
demand adjust prices downward to stimulate more purchases.
IBM, HP, and Dell were all looking into dynamic pricing approaches for their
e-commerce operations since early 2001. Different factors motivated:
price of memory product life cycle "contextual pricing”
chips and purchase cost affects
and demand
what customers paid
processors
overall.
38. DYNAMIC pricing.
Frequently varying online prices in response to changing
market conditions
will maximize returns and
may create competitive advantage.
High
Price, Optimum
$ Lower Cost
Inventory use
Maximize Returns $
HIGH DEMAND Higher Sales, Use
of inventory,
Availability LOW DEMAND Maximize Returns
Fair Price
39. DYNAMIC pricing.
Features
Consumers are willing to pay different prices at different times or in
different situations.
A traveler buying an airline ticket three months in advance expects to pay less for that
ticket than a traveler purchasing a ticket at the last minute.
Benefits
Allows sellers to tailor their marketing or inventory to the needs of
their customers.
Considerations
Customers enjoy feeling as if they've gotten a bargain, and this
feeling increases customer loyalty. However, seeing an item priced
at $50 when they paid $100 for it the month before has the opposite
effect.
40. DYNAMIC pricing.
The modern airline industry has gone through
numerous changes since the late '70s.
Since the deregulation in 1978, U.S. airlines
have been employing dynamic pricing.
45. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
By default $20 was added to your total
price. One needs to specifically remove
from booking.
46. 1. Search 2. Select Flight 3. Passengers 4. Seats 5. Extra 6. Payment
We charge a
Booking and Service
Fee for some
bookings completed
online.
We actively
encourage our
customers to pay
SGD $17.00 per using one of the
passenger per payment methods for
booking applies for which no Booking
Visa Credit Cards and Service Fee
applies.
47. Expectation
$356
1. Search
FIXED PRICE
1. Fare based on date & time.
$986
2. Bundled Options –
2. Select Flight
Seat, food
1. Baggage
2. Comfort me
3. Feed me
$2,034
4. Bundle: Hotel
3. Passengers
Seat Options
4. Seats
$17 - $30 per flight
$2,034
Travel Insurance
5. Extra
$20 per pax
$2,056
Credit Card Fees
$17 per pax
6. Payment
$2,073
48. DYNAMIC pricing.
The “perishable inventory” products i.e. Airlines Seats, hotel rooms –
there is just no doubt on the value of dynamic pricing.
What about e-retailers?
49. DYNAMIC pricing.
Three different types of dynamic pricing.
Time-Based Pricing - different prices customers are willing to pay at
different times. Clearance pricing (JC penny, GAP)
Segmentation and rationing – willingness of customers to pay
through different channels, at different times and with different levels of
effort. Airlines
Dynamic merchandising - Internet-enabled capacity to change prices
rapidly and frequently to offer customers different
products, promotions, delivery options and pricing as supply and
inventory change. Amazon.com
These various dynamic pricing strategies can be combined or used
separately, depending on the situation.
50. DYNAMIC pricing. JC Penny.com
Time-Based Pricing
- different prices
customers are willing
to pay at different
times.
Clearance pricing
53. Auction
An auction is where a seller places any item for sale with no definite
price for an item (or with reserve price). The price are determined by
bidders interested in buying the items.
ubid.com; amazon.com; ebid.net; oztion.com.au; google.com/products
54. some golden rules ………
No pricing battle with your competition. Unless you’re
1 Margins. Margins. Margins bringing in the traffic you need to justify any lowering
of price, you could be losing money.
“Why will our customers continue shopping with us?”
2 Unique Selling Proposition For Zappos, it is their unbelievable customer service.
Let’s sell something at a ridiculously discounted rate
3 The Loss Leader Strategy and hope that customers purchase more once they
are in the door. Doesn’t always work.
After you are comfortable with margins and have
4 Incentivize Your Customers figured out a pricing strategy, it is time to motivate
your customers to open their wallets.
You will need to measure and test each strategy you
5 Test and Test and Test implement to see what works and what fails. Use tools
like Google Analytics.
55. Copyright & Disclaimer
This presentation was delivered (without any commercial benefits) at the 2nd Asia e-
Commerce Conference held on the 5th-6th November 2012 at Kuala Lumpur.
Research on the topic was gather from various sources, including the web. Please
honor 3rd party copyright requirements.
Some of the images used in this presentation has been taken from the manufacturers
web site. These images have been used on a non-commercial basis only for this
specific presentation. The copyright of these images belong to the respective
manufacturers/web site owners.
The views expressed in this presentation is that of the speaker “Suraj Mishra” and not
the company “Aprikot Pte Limited”. The speaker, however did not make any
concluding statement, left it to the audience to select what is relevant and best
winning strategy for them.
The examples in the presentation is showcase “pricing strategy”, not to make any
judgment call on quality of pricing strategy adopted by a company.
The ZMOT is now a more important factor to driving a consumer to purchase than both the initial stimulus a shopper receives from an advertisement and the shelf experience a customer has in-store. Ultimately, this means that shoppers care more about what other shoppers are saying than they do about advertiser and retailer claims.Furthermore, one person’s purchase experience becomes the next person’s ZMOT. The more shoppers write helpful product reviews, provide product ratings, and/or mention your product online, the more information the next shopper has to consider in their own purchase process.
The very essence of defining the pricing strategy is to beat competition and to attract customers to a particular product. This has been happening even before the word price had been coined. But the advent of internet has changed everything. Infact it has removed the cushion on which marketers made deals at different prices” Information”. The internet has opened the market to one and all. The fact is it has become the biggest market in the world. A villager in the remotest part of world can buy the same item that we can buy and maybe sometimes at a price cheaper than what we had to pay. Well shipping cost do occur but with such a huge reach Internet has virtually removed all the physical barriers and borders. Anyone and everyone who has an access to internet is a potential customer and has his own buying capacity. A company offering such flexibility to at least a portion of this market is bound to succeed. The fact is in short words Internet has made pricing unstable. It has made it more dynamic. Pricing can no longer remain the same for a long time. Infact the changing technology has made the average life of product small. What was a sensation today will be outdated in a week as technology and its reach advances. Whereas in older days it wasn’t so. This has made pricing also change. The more the dimensions in a product’s life change the more it impacts it price. For example a Smart phone. The cost of a pre-order smart phone is always higher than the cost of the same phone after launch. And infact within weeks of the phone’s launch its price may either go up or down not just based on where it is sold but taking the whole world sales scenario in mind. So, if it cost $300 in Singapore in a store the same may cost $200 online. Thus the dimensions of the market have changed and so have the pricing patterns of the product with the advent of the internet. This has made the consumer more aware of all the aspects of a product including its price and made the consumer more demanding and more technologically aware. This has made the consumer more demanding with the knowledge he has and the fact that he knows these prices are possible. So, pricing a product has made it more important. The fact remains that a pricing strategy should be ever changing otherwise a competitor with changing pricing strategy will actually eat into the market pie in a flash.In a nutshell to sell something to a consumer now the websites provide facts, solid testimonials and trail of hands on use so that uniqueness of their product or service is seen. As a matter of fact a few websites no, most websites have a enabled price comparison all available alternates then and there to make it more competitive and attractive.All these ladies and gentlemen have made the willingness to pay less and hence the need of a pricing strategy so that the company makes money while still holding on to and increasing its market share all more important.
Before I proceed into pricing, I will like to show you a video that I got from Google Analytical.
Before I proceed into pricing, I will like to show you a video that I got from Google Analytical.
In my opinion there are two golden rules on pricing.
In my opinion there are two golden rules on pricing.
Pricing strategy has been a pillar of online merchandising, but what worked yesterday might not work so well tomorrow. In other words, every winning recipe needs constant monitoring and, sometimes, adjustments.
Pricing strategy has been a pillar of online merchandising, but what worked yesterday might not work so well tomorrow. In other words, every winning recipe needs constant monitoring and, sometimes, adjustments.
Price LeaderA product that has a demonstrated benefit or attribute over other products in the same category can price itself far above the prevailing pricing rates. Tide laundry detergent is such a product in the laundry detergent segment. Liquid Tide can cost almost 10 times the amount of other brand name detergent products like Arm & Hammer or Gain for the same amount of product. For decades, Tide has made numerous product improvements, and heavy advertising spending communicated its superiority over competitors and justified its position as the pricing leader. Price MatchingMatching a competitive price is a tactic used by marketers to take the issue of price off the table. This tactic is used by a company that may be stronger competitively on other features and benefits. Price matching puts a competitor on the defensive. The gasoline industry sets price based upon the price of crude oil primarily. However from block to block, there will be price matching and even pricing wars among local competitors. Price UndercuttingA product may undercut price with the recognition that it is in a difficult position against a strong competitor and the only way to compete is to lose money on price but make it up on the volume sold. This is known as price undercutting. With this strategy, unit sales volume becomes the measurement of market success rather than dollar sales volume. The goal here is to make up the loss realized from a lower price with growth in unit sales from an attractive price, which creates higher demand and thus higher total dollar volume. Lost LeaderAnother pricing strategy is to sell a product at such a low price that the company loses money with each purchase. This strategy is usually a short-term strategy that the product employs to create demand for itself or another company product selling in the same product category. A manufacturer of bread spreads might price its jelly as a lost leader and charge a premium for its peanut butter. The perception by customers is that both products have a good price even though one might be significantly above competitors' pricing. Close Out and Sale PricingThis pricing strategy is employed when the goal is to move units of product without regard to price. This is a technique often used by stores that are closing or when new seasonal merchandise is due in the store but current stocks of last season's goods have not been sold.
I found this interesting quote by Kate Mcfarlin a free lancer – insurance agent. “While it may seem simple to set a price for an item, several consumer psychology factors come into play. The price point you set for your item may even determine how successfully it sells.”-Kate McFarlin
First, it provides new opportunities for companies to maximize their return per customer. Companies gather information about their competition and about customer needs and willingness to pay then customize their offerings and prices. With dynamic pricing, companies can give their customers exactly what they want, at exactly the price they are willing to bear. Nothing is left on the table. The second, perhaps less obvious, benefit is that dynamic pricing can also bring better returns on deployed assets. For businesses with high fixed-cost technology infrastructures, periods of low demand and, thus, low utilization are expensive. Conversely, when there are inflexibilities in the supply chain for critical components, periods of high demand can lead to shortages and can both delay purchasing and damage customer relationships. But with dynamic pricing, companies can encourage demand in slow periods and discourage it in busy periods.
Time-Based Pricing - exploits the different prices customers are willing to pay at different times. For example, early buyers are willing to pay more for the latest fashions, computer and electronics innovations. Two types - Peak-load pricing and Clearance pricing (JC penny, GAP). Segmentation and rationing exploit the difference in the willingness of customers to pay through different channels, at different times and with different levels of effort. Airlines may have as many as 15 different prices for the same seat, depending on whether it is a restricted or unrestricted fare, when it's booked (say, a 14-day advance purchase versus a one-week advance purchase) or other factors. Dynamic merchandising exploits the Internet-enabled capacity to change prices rapidly and frequently to offer customers different products, promotions, delivery options and pricing as supply and inventory change. It allows Internet sellers to clear excess inventories without always having to lower their prices and potential profits. For example, Amazon.com makes personalized buying suggestions every time a return customer logs on to its site. That way it can clear inventory and gain sales based on each customer's particular interests.
Time-Based Pricing - exploits the different prices customers are willing to pay at different times. For example, early buyers are willing to pay more for the latest fashions, computer and electronics innovations. Two types - Peak-load pricing and Clearance pricing (JC penny, GAP). Segmentation and rationing exploit the difference in the willingness of customers to pay through different channels, at different times and with different levels of effort. Airlines may have as many as 15 different prices for the same seat, depending on whether it is a restricted or unrestricted fare, when it's booked (say, a 14-day advance purchase versus a one-week advance purchase) or other factors. Dynamic merchandising exploits the Internet-enabled capacity to change prices rapidly and frequently to offer customers different products, promotions, delivery options and pricing as supply and inventory change. It allows Internet sellers to clear excess inventories without always having to lower their prices and potential profits. For example, Amazon.com makes personalized buying suggestions every time a return customer logs on to its site. That way it can clear inventory and gain sales based on each customer's particular interests.
1. Margins! Margins! Margins!I wouldn’t recommend getting in a pricing battle with your competition. As you slowly lower your prices, you may end up dropping them to an unacceptable level. Unless you’re bringing in the traffic you need to justify the lower pricing, you could be losing money. Additionally, having the cheapest prices may not be feasible with other products, but your customers are already used to your low prices and may search somewhere else, the next time around. 2. Create a Unique Selling PropositionIt is always important to ask yourself, “What makes us different than our competitors?” and, “Why will our customers continue shopping with us?” For Zappos, it is their unbelievable customer service. For Sevenly, it is their contribution to a weekly charity. Your business needs to discover what makes it unique and then cultivate and incorporate this angle into your pricing strategy. 3. The Loss Leader StrategyThis is not a new concept. Let’s sell something at a ridiculously discounted rate and hope that customers purchase more once they are in the door (real or virtual, of course). This strategy can work with the right products and can help with customer acquisitions. The best example is that you can now buy printers for $25-$30, but the ink costs $50 to replace. If you have a product you can use this strategy for, while still keeping your margins vs. traffic in mind, you might want to give it a go! 4. Incentivize Your CustomersNow that you are comfortable with your margins and have figured out a solid pricing strategy, it is time to motivate your customers to open their wallets. There are many different ways to do this, but what is really important about your incentives is the psychology behind them.Limited time offers are a great way to motivate. For example, “During the next 6 hours, you’ll get an additional 20% off!” The knowledge that the offer won’t always be around could help someone decide to purchase immediately, as opposed to procrastinating and forgetting about the item, altogether. The way you structure a deal can also help push the customer to purchase your product or, at least, think twice about it. When a customer sees, “Buy one, get one 50% off,” their mind processes a 50% discount, when really, they are only getting 25% off. If you happen to have extra inventory, offering a two-for-one deal could work. This can give your e-commerce store the reputation of offering great deals but you don’t have to kill your margins to gather attention for your products. 5. Test and Test and Test and TestEvery product and every store is very different. You will need to measure and test each strategy you implement to see what works and what fails. Use tools like Google Analytics to track and analyze the website traffic results of your pricing strategies. Find out if your “Winter Sale” converted the results you were hoping for and if not, find out why, so that you can fix it for your next pricing campaign.