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The Price is Right...or is it?

Posted by Dr. Jay Weiner

Thu, Jan 28, 2021

Pricing Method and Strategy Blog Opener Jan 2021

An Overview on Pricing Research

Pricing a product or service correctly is critical to realizing profitability. Too often, pricing decisions are based on the cost to develop and produce the product or service. Price it too high, and no one will buy. Price it too low, and in addition to forgoing revenue, your buyers may question the quality.

One typical goal of pricing research is to understand price elasticity—the measure of the change in the quantity demanded of a product in relation to its price change. The typical micro-economics course presents the downward sloping demand curve.

price is right graphic

As the price is raised, the quantity demand drops, and total revenue falls. In fact, most products exhibit a range of inelasticity. That is, demand may fall, but total revenue increases. It is the range of inelasticity that is of interest in determining the optimal price to charge for the product of service. Consider the following question: if the price of gasoline was raised 5¢ per gallon, would you drive fewer miles? If the answer is no, then we might raise the price of gas such that the quantity demanded is unchanged, but total revenue increases.

The range of inelasticity begins at the point where the maximum number of people are willing to try the product/service and ends when total revenue begins to fall. Where the marketer chooses to price the product/service depends upon the pricing strategy. A company should have a strategy for pricing a product/service throughout its product lifecycle.

There are two basic pricing strategies:

  1. Price skimming sets the initial price high to maximize revenue. As the product moves through the product lifecycle, the price typically drops. This strategy is often used for technology or products protected by patents. Apple and Samsung, for example, price each new mobile phone high and as other competitors match performance characteristics, they lower price.
  2. Penetration pricing sets the initial price low to maximize trial. This pricing strategy tends to discourage competition, as economies of scale are often needed to make a profit. Understanding the goal, maximizing revenue versus maximizing share is part of the first step of pricing work.

The pricing researcher needs to understand this range of prices to make good strategic pricing decisions. There are many approaches to pricing research:

  • Blunt approach: You can simply ask, “how much would you be willing to pay for this product/service?” In this approach, you typically need a large number of respondents to understand purchase intent at a variety of price points.
  • Monadic concept: You can present the new product/service idea and ask, “how likely would you be to buy X product @ $2.99?” Monadic concept tests tend to over-estimate trial. This may be because prices given to respondents in a monadic concept test do not adequately reflect sales promotion activities. Respondents may think that the price given in the concept is the suggested retail price and that they are likely to buy on deal or with a coupon.
    Monadic concept tests also require a higher base size. A typical concept test would require 200 to 300 completes per cell. The number of cells required would depend on the prices tested, but from the results we often see, it appears that these cells tend to over-estimate the range of inelasticity. Providing a competitive price frame might improve the results of monadic concept tests.
  • van Westendorp’s Price Sensitivity Meter (PSM): The van Westendorp model is a good way to get at price elasticity and better understand the price consumers are willing to pay for a particular product or service. Developed by Dutch economist Peter van Westendorp, the underlying premise of this model is that there is a relationship between price and quality, and that consumers are willing to pay more for a higher quality product. The PSM requires 4 questions:
    • At what price would you consider the product to be getting expensive, but you would still consider buying it? (EXPENSIVE)
    • At what price would you consider the product too expensive and you would not consider buying it? (TOO EXPENSIVE)
    • At what price would you consider the product to be getting inexpensive, and you would consider it to be a bargain? (BARGAIN)
    • At what price would you consider the product to be so inexpensive that you would doubt its quality and would not consider buying it? (TOO CHEAP)
    The van Westendorp series does a reasonable job of predicting trial from a concept test without the need for multiple cells. This reduces the cost of pricing research and the likelihood that we do not test a price low enough. The prices given by respondents are believed to represent the actual out-of-pocket expenses. This permits the research some understanding of the effects of promotional activities (on shelf price discounts or coupons). The van Westendorp series will also permit the research to understand the potential trial at price points higher than those that might be tested in a monadic test.
  • Conjoint Analysis: Conjoint is often used in early product development to assess the value of including certain features into the product/service option. While this does provide some indication of what attributes or features consumers would pay more for, it does not do a good job capturing the true value of these features. To do that, we need to show consumers a competitive set of offers from which to choose.
  • Choice based conjoint and Discrete Choice allow us to test products in a competitive setting, and to get a truer read on price elasticity and willingness to pay for certain features.

Choosing the correct pricing methodology is often dependent on where you are in the new product development process. The closer to market launch, discrete choice models offer the best insight into the actual potential in the market. Early in the development process, the other techniques provide guidance on how to price the product and how to choose a pricing strategy. Whatever stage of development or pricing strategy the technique you choose should yield results that help you make smarter more confident marketing decisions.


Jay WeinerJay Weiner, Ph.D. is CMB's VP of Analytics & Data Management.

Follow CMB on FacebookInstagram, LinkedIn, and Twitter for the latest news and updates.

 

Topics: advanced analytics, methodology, product development, data collection, Dear Dr. Jay, predictive analytics, Market research, technology, Best Practices, pricing

Find the Truths That Matter Most in Next-Gen Gaming

Posted by Brenda Ng

Tue, Apr 28, 2020

If you’re a studio, developer or marketer of games and/or gaming platforms, you know there are evergreen customer truths in developing a successful product, experience and go-to-market (GTM) strategy. For example, applying an influencer strategy for launches. But do those truths apply to new gaming platforms such as cloud gaming, VR, or the impending next gen consoles?

Some gaming truths are vitally relevant to these nascent platforms. But there are a few new surprises from A Gamer’s Journey. This comprehensive study of nearly 4,000 U.S. gamers rigorously explored how gamers become aware, evaluate, buy, and use traditional and emerging gaming platforms.

The three implications for studios and platformers roll up to partnering and planning even closer together to deliver the best player experience and longevity for the franchise and platform. As you read the below, the dance steps are similar, which makes dancing together much easier.

1. FEED THEIR CURIOSITY & EASE THEIR EFFORT
Even though VR products such as Oculus and Vive debuted in 2016 and cloud gaming has been around even longer, gamers spend significantly more effort in VR purchase journey (and expensive gaming PCs) compared to consoles, games and peripherals.
Next Gen Gaming Blog Slide 23
Within this category, comparing and researching products are first and bigger steps compared to more established gaming categories. That’s a lot of motivation and curiosity to feed!
Next Gen Gaming Blog Slide 16
With so much time and effort comparing platforms, there’s more receptive ‘reach and frequency’ available to raise awareness of your game if it’s available on multiple VR headsets and cloud gaming services. In other words, if your game isn’t exclusively on a single product or service, it’s in studios’ and platformers’ best interest for the gamers, to feature available games with the core hardware or service specs—not a one or two clicks away or purely separate ads for games.


2. DON'T TREAT EVERYONE THE SAME
If VR and cloud gaming have been around for over four years, what type of gamers do you need to reach, and does it change your GTM strategy? It turns out the biggest detractors are casual gamers.

Next Gen Gaming Blog Slide 6

Most surprisingly, the assumption that everything you do to reach hardcore gamers is not the same for casual gamers. Yes, word-of-mouth is the top purchase trigger. But you can save on advertising with casual gamers because they are less attuned. However, the investment you make in providing available trials and earning solid reviews with hardcore gamers will reverberate and trickle down through word-of-mouth to casual gamers.

3. LOYALTY STARTS WITHIN
Managing your studio’s or platform’s reputation is reflected by how you treat your employees. With the movement of activist employees in high tech, gamers are noticing, and they care. When asked what is important to a studio’s reputation, all gamers (regardless of age, self-identified gender, platform, core or casual) agreed the top priority for studios is improving treatment of employees: “I’m more likely to buy a game from a studio that treats its employees well.”  This is much more important than managing the perception of putting profit before players or confronting wider societal issues.  People--employees and players--first. Now that’s a welcomed universal truth, pre-COVID-19, that will likely endure.

In a coronavirus world, one thing for certain is the uncertainty of the supply chain hitting next gen consoles’ Holiday 2020 launch timeframe and delivering significant unit volume availability.  And with E3’s cancellation, feeding and managing gamers’ expectations requires intense, dance-like synchronization between studios’ and platformers’ game experience availability.  The good news is this close partnership applies to cloud, PC, VR and mobile gaming too.


Brenda NgBrenda Ng, VP of Strategy, specializes in applying research to product development and GTM strategy and decisions, with expertise and global experience in high tech.

For more insights, please follow us on LinkedIn, Facebook, and Twitter. Don't forget to immerse yourself in our latest gaming research: A Gamer's Journey | The Virtual Reality Edition. And stayed tuned for more of our findings--VR and beyond.

Explore A Gamer's Journey

Sample provided by Dynata

Topics: strategy consulting, product development, advertising, marketing strategy, Consumer Pulse, growth and innovation, customer journey, Market research, technology, engagement strategy, Gaming, AR/VR, Next-Gen Gaming

Wear Your Brand Hat to Ensure Segmentation Adoption

Posted by Brenda Ng

Tue, Sep 24, 2019

Wear Your Brand HatThe best segmentation is wasted if your internal teams and agencies aren’t using it.  Compared to a one-time launch event, an adoption campaign takes place over time, and allows for new behaviors and an understanding of the target segments’ lens to groove.   

Brand Hat

Create and have fun with an adoption campaign by putting on a brand and product management hat.

  • Target: Which groups should adopt the new segmentation?  Marketing, sales, product, executive leadership, agencies, finance, customer service?  This determines the scope and reach of the campaign.
  • Goals: Focus on deep understanding of your prioritized, target segments, not necessarily every category segment.  What behaviors do you want to see?
  • Duration: Like any product launch, the campaign could be broken down into three parts: pre-launch to anticipate and raise awareness; launch to introduce; and post-launch to provide reinforcement.
  • Naming: Own it!  Create a name for the campaign that links to the segments or the benefit of transitioning to a new segmentation.  It can be activated during the pre-launch, teaser phase.  For example, “Coming soon.  A Fresh Perspective.”  Or “They’re arriving.  The Fabulous Four.”

Fun. Fit.

A bevy of fun, engaging ideas can be modified to fit your company’s culture or industry.  Everyone has a different learning style, so mix it up to dial up the reach.  A few jump-start ideas:

  • Create each segment’s LinkedIn profile. Or create Tinder profiles.
  • If each segment had an Instagram account what would that look like? If you have the budget, provide instant cameras, assign a segment to a team (or better, have a team member complete the algorithm to determine their segment), and have them complete a scavenger hunt using snapped pictures.  Use cellphone cameras for a no-budget option.  Or create a Fun Friday where each team dresses up like a segment, brings a segment’s favorite foods to share, plays their anthem in the background—and the other teams guess the segment.
  • Create an internal website or database that has the facts, figures, sizing, valuation, etc. to be used in estimates, forecasting, and modeling.
  • Rename conference rooms by segment name, for 3-6 months. One conference room per segment. Further bring the segment to life through decorations, and interactive experiences.

Brief Details

Small details matter to reinforce adoption of the new target segments. 

Refresh templates for creative briefs, new product briefs, and market research briefs to include a trigger:  Which target segment is this effort for?  Leave space to include important insights and numbers.

Now, you have the keys to a successful segmentation.  We’re happy to help.


Brenda NgBrenda Ng, VP of Strategy and Account Planning, spearheads CMB's engagement solutions from product development to strategic planning.

For more insights, please follow us on LinkedIn, Facebook, and Twitter.

Topics: product development, marketing strategy, market strategy and segmentation, brand tracking, experiential marketing, engagement strategy

Breakthrough Innovation with Co-Creation

Posted by Kathy Ofsthun

Tue, Jun 06, 2017

creative mind-2.jpg

Innovative companies have long recognized that failure can be an important step on the way to success. Brands are told to “quicken the pace of innovation”, “try new things” and “don’t be afraid to fail”. But these days there’s little room for failure: the stakes are high and there’s more pressure than ever for brands to innovate. Customers have spoken and it’s time for brands to listen—to be customer-centric.

So how can brands challenge themselves to innovate and to try new things without wasting time and money?

Co-creation can help you innovate and sometimes, fail faster. This innovative approach is based on principles of Improvisation and System 1 / System 2 thinking and brings brands and customers together to ideate and build out promising new ideas, products, and services. Co-creation inserts customers directly into the conversation—not through a survey or by listening from behind the glass, but by working right next to you. Our approach lets you collaborate with your customers to decide what the issues are, where the pain points occur, where joy happens and where the opportunities lie. Then together you build that future.

Technological advances, including social media, 24/7 news, online reviews and the resulting rapid word-of-mouth, have put customers in the driver seat. It’s no longer brands talking to customers, rather, it’s a two-way conversation. Brands need to listen intently, be accessible and available, and authentically work with their consumers, instead of working in isolation, creating products and services that often don’t address customers’ needs, or messaging that misses the mark.

Co-creation eliminates the guessing game in an energetic and productive day or ½ day workshop. Facilitated by an expert moderator, a group of cross-functional stakeholders together with customers, collaborate at an offsite, creative space. Pre-work is assigned to upskill and orient participants to the topic. Using divergent and convergent methods, in plenary, small group and individual exercises, you jointly explore the relevant topic, ideate scores of new ideas and begin to build out the future, together. 

At CMB, our Innovation team has successfully led co-creation sessions for large CPG brands, insurance clients, academic institutions, hospitality execs and more.  We have explored food, beverages, loyalty, apparel, deductibles and education with Gen Z, Millennials, Moms, sneaker heads, professors, underwriters, patients, and probably your customer. 

Want to see co-creation in action? Check out this recent video of a workshop we facilitated in NYC for a global leader in hospitality.

Kathy Ofsthun is the Vice President of Qualitative Strategy + Innovation.  She is a facilitator and RIVA trained moderator and has co-created with clients and their customers in the Hospitality, CPG, Insurance and Academic industries.  Her Twitter handle is @ShopperMRX as Kathy loves to shop, hoarding shoes from heels to hiking boots.

 

Topics: product development, qualitative research, growth and innovation, co-creation

7 Things Yoga Can Teach Us About Product Innovation

Posted by Judy Melanson

Thu, May 04, 2017

yoga group sitting-1.png
Last month I spent a week in Costa Rica attending a yoga retreat and returned home feeling relaxed and balanced. As I reflected upon what I learned, I realized that what was driving my positive feelings can be applied equally well to driving success in new product innovation.

I recently wrote an article commending brands for thinking “outside the box” to drive innovation, so this parallel struck me as a relevant and timely follow up. Here are the seven steps:

Step 1: Remove Distractions

At the retreat, we were encouraged to remove distractions that interfere with being present and mindful. Try this: take a couple deep breaths, focus on steady breathing, and try to quiet your mind. Once your mind is clear, you may find yourself at peace, more relaxed, and with space to visualize your goals. Similarly, when embarking on new product innovation, a company needs to remove distractions, ground itself, and make space to visualize its goal(s). 

Step 2: Articulate the goal and visualize a successful future

Now you have space to identify your goals and visualize the futureto explore your personal purpose and to consider your North Star (your guidance). Similarly, brands must recognize and articulate the purpose of its new product innovation:  Why is innovation important (or necessary) to the organization? What are the desired outcomes? Is it attracting new (next generation) customers or reengaging current ones?  What brand benefits (or positioning) can be leveraged?  What is the North Star: Where will success take the organization? 

Step 3: Identify the roadblocks

To progress along the path of personal development, at the retreat we identified the barriers to achieving our goal. This is personal and can be challenging, but if roadblocks aren’t identified early on, it’s possible that you’ll run into them later. What’s holding the organization back? Is there anyone or anything that is preventing/hindering innovation? How can these obstacles be overcome?

Not all barriers are negative. When I’m working with clients on new product development, we look for the constraints–the rules by which the innovation must exist. While it’s tempting to chafe at the constraintsto react negatively to existing guiderailswe’ve learned about their value. Without any constraints, it’s easy to lose your way. Paradoxically then, these constraints can become a tool of innovation.  

Step 4: Stretch your thinking

With your mind clear, goals outlined, and obstacles identified, it’s time to start moving. Brands need to step outside their comfort zone into an expanded way of thinking, so develop an action plan to stretch your perspective and view of what’s possible. For me at the retreat, the action that brought me out of my comfort zone was yoga dance (!!), but brands should consider other methods. How about running a Co-Creation session? Or instead engage a panel of thought leaders or futurists on perceptions of where the industry is headed. Perhaps reach out to some Gen Z-ers, artists, or hackerssomeone who will make you think differently. If a brand is open and mindful, it’ll find points of inspiration. 

And remember to keep goingeven when you think you’re done. Just like in yoga, the work starts when you’re getting tired.

Step 5: Draw from and reflect energy back to your community

Sometimes it feels like you’re the sole voice of change, but recognize that you are part of a greater ecosystem. In yoga, this community is called your “sangha” and can provide strength, power, and support when you need it. Seek it out. Listen for it. Feel it. Innovation demands teamwork and collaboration across multiple teams, so leverage these different insights and perspectives.

Step 6: Service for others

At the retreat, I learned that yoga is something far more powerful than a fitness routine or a timeout from a busy life. Yoga is a transformative tool that enables you to show up for others and be of service to them. Similarly, an organization seeking innovation needs to act in service of its consumers. It must believe in and clearly articulate the benefit innovation provides to the consumer. Focus on how it will positively serve the consumer instead of the features and functionality it provides.

I’ve been in sales for most of my life, but I’ve never considered myself a “salesperson”.  I like to consider myself a “facilitator”—someone who helps people/brands accomplish their goals. I’m motivated by this place of serving others.

Step 7:  Commit to daily practice

Innovation that drives business results doesn’t happen overnight, and just like yoga, it requires continual practice and study. Even after you’ve launched a new product, you and your team should commit to reviewing results and continued adaptation and growth. My suggestion for daily practice: Turn off your email and go for a walk. Stretch your thinking and listen carefully to those with different perspectives. Be open to learning. Give yourself permission to fail. Just keep trying and never give up.  

I hope these learnings can help ground and focus your plans for new product innovation. I hope you find yourself more confident in your path, with a stronger sense of your organizational purpose and a franker assessment of the barriers. I hope you feel better aligned with the opportunity and to your community. I hope you feel more flexible while still being focused on your goal. 

yoga group posing-1.png

 Namaste (Peace).

Judy Melanson leads the Travel and Entertainment practice at CMB, focused on helping companies prioritize operational and marketing investments to drive positive business results.  An empty nester, Judy now has time in her life to enjoy painting, running and, obviously, yoga!

Topics: product development, growth and innovation