Nov 24, 2021 | Branding, Marketing
Customers read much into the price you choose to charge, the architecture of your price list, and willingness to deploy price tactically.
Price can also override all your other marketing activity, as it is the quantitative reflection of what you think your customers are prepared to pay. It reflects the market in which you choose to play.
When was the last time you saw Grange discounted in Dan Murphy’s, or a ‘dinner-deal’ at the perennially ‘three hatted’ Quay restaurant in Sydney?
‘Never’ would be the right answer.
Price is a key part of the strategic choices that must be made to establish a ‘Price Architecture’. This architecture is in its turn a fundamental driver of the business model.
So called ‘premium’ products have many characteristics: extreme quality, scarcity, a differentiated offer, a strong brand, high service levels, are often hard to find and with few if any substitutes. The purchase of a truly premium product demands deep consideration and happens rarely. It is never driven by discounts.
By contrast, commodity products have none of these characteristics, but do have a low relative price, and are easily substituted.
The distance between these two extreme points is a continuum along which a product can be moved, by accident or design. The limiting factor is that it is very hard to move ‘up’ the continuum from commodity towards premium, but very easy to slide in the opposite direction.
Your position on the scale is one of both strategic and tactical choice.
Make the choice wisely.
Nov 8, 2021 | Customers, Marketing
Many small businesses operate a job-shop business model for some or all of their revenue.
They do not produce products, then sell from inventory, they sell a product as specified by the buyer, which in the detail will be unique. However, from a higher perspective, there will be great similarity to many other jobs they have done, the experience from which is valuable.
This extends from engineering workshops, toolmakers, smash repairs, printers, and many others. Many SME’s I have seen deploy fancy estimating software that can and does cost the individual jobs down to the last fraction of a cent. The downside of this otherwise admirable level of detail is fourfold:
- It is too easy to make a mistake telling the software what to cost, and what comes out of the computer is rarely adequately questioned. This trust in the output of software can lead to significant blunders.
- The time it often takes from the initial request, to estimate production costs, price approval, and communication to the potential customer
- The customer does not give a toss about your costs, they only want the price so they can make a choice, almost always on a set of factors of which price is only one. Often a major one, but still only one of several.
- The conversion rate from request to sale is often very low, particularly in commoditised industries like printing, so many resources are wasted, or margins are cut to secure a job because the operational equipment may be otherwise idle.
In these circumstances, a guesstimate based on industry knowledge and intimate understanding of the operational costs that comes from long association may be enough. It may not be as accurate in the detail, but will be close, and may meet one of the increasingly potent drives of customer behaviour:
Immediacy.
Take printing for example, an industry where I have had some exposure.
At the ‘small’ end, much of the volume has been taken by local instant print shops. They all operate with the same equipment, same material costs, at standard machine costs per piece printed. The total cost therefore becomes a function of set-up time, wastage, and overheads. In these cases, the conversion rate is more a function of turnaround time and convenience for the customer than anything else.
At the ‘bigger’ end, multicolour offset, and even more bespoke letterpress, price does become a larger factor, but still only one of a number: quality, service relationships, value add services such as storage and part delivery, artwork services, and turnaround times. In these cases, the profitability is obviously impacted by price to the customer, but also very heavily by the flow of jobs through the factory and machine utilisation achieved, to which customers are oblivious and uncaring.
The impact of increasing the flow of jobs that have the costings ‘roughly’ right, but delivered ‘on the spot’ to potential customers is huge. The resultant machine utilisation, combined with the conversion attraction of the quick turnaround sought by customers dwarfs the job profitability added by taking time to accurately estimate the last few percentage points of cost.
In one case, a printer I was working guaranteed a firm price and turnaround time within four working hours of receipt of the request. This often required judgements to be made based on deep knowledge of costs from experience, and a high level of control of the workflow. Early on, some mistakes were made, but the ‘guestimates’ became increasingly accurate when measured against the detailed software estimations, to the point where we needed only a small number of basic job parameters to be crunched by the software to get what proved to be a very accurate costing. Meanwhile, the immediacy of quoting increased the conversion rate substantially, which flowed into greater machine utilisation, which together delivered big increases in profit in an industry suffering poor profitability.
Sometimes informed guestimates of costs are the best way to build profit.
Header photo courtesy Wiki Media.
Oct 26, 2021 | Marketing, Strategy
There are a number of common phrases used in marketing that should be redundant.
‘Go to market’ is often used before words like ‘strategy,’ ‘Plan’ and ‘Process.’
‘Product/market fit’ is increasingly used in the context of digital products, as in ‘seeking product/market fit’ with prototypes and ‘Minimum Viable Product’ tests before committing to the expense of production.
They have served their purpose but are now redundant.
Independently there has been a rise in the use of the term ‘customer centric.’
I seem to be hearing it a lot, even from those who have never seen a customer, let alone interacted with one. It is fast becoming a cliché.
At the same time, we have a phalanx of tools at our disposal that can segment and re-segment customer cohorts down to the micro level. These are used by those flogging digital space for ads, ‘micro-targeting’ and regrettably, often micro retargeting.
It seems pretty obvious to put these together and start thinking about ‘go to customer’ strategies.
Surely if the customer is truly central to what we are seeking to do, add value to their lives, solve problems, and make a bob delivering that value to them, we should be figuring how to talk to them as mentors and peers, rather than yelling at them from the sidelines.
Micro segments, or micro groups of customers with specific needs, problems, contexts, or indeed, lapsed customers, those who have dropped out of the ‘funnel’ in some way. We can now focus our efforts on understanding these people and re-engaging with them in a human way.
It is all about finding the places potential customers look for information, for engagement, and all the rest of the things they do before they actually make a purchase decision.
Customer centric means you go where the customers are, not try and force them into a funnel that assumes they all act in a similar manner.
These days with all the tools at our disposal, you need an ‘always on’ marketing strategy rather than the traditional episodic campaign communication processes.
Oct 18, 2021 | Branding, Marketing, Sales
In competitive markets, price is a bit like a game, typified by the ‘prisoners dilemma’ of game theory, where two players acting in their own self-interest will result in a suboptimal outcome for both.
In the classic scenario, you have two people, suspects of a crime held in separate rooms with no means to communicate.
The copper tells each of them that if they confess and testify and the other does not, you will go free.
If you do not confess and the other does, you will get the maximum sentence of 3 years.
If both confess you will both be sentenced to 2 years.
If neither confesses, there is enough evidence to have you both serve 1 year.
The result is that if the prisoners act out of self-interest, the result is worse than if they had cooperated.
When you consider this in a competitive duopoly market, to keep it simple: what happens if one party cuts its price?
The other has the choice of cutting theirs to match, which inevitably results in less profit for both if competitor two cuts their price in response. However, if the reaction of the second mover is to keep their prices up, they might sell less, but very probably make more profit. The price cutter will be relying on selling more at the lesser price to increase profit, or grabbing market share which is usually the driver, because of the added volumes.
Given most organisations have KPI’s around sales volumes, the temptation to cut prices in the face of competitive activity is almost irresistible, despite the profit impact which is often ignored.
The Fountain Tomato sauce story: I joined Cerebos back in 1981. Fountain Tomato sauce had a share in NSW of about 40% of volume and 50% of value. Fountain sold for .72 cents for the 600ml bottle, I remember the numbers well. A short time after I joined, discounter Franklins brought out No Frills tomato sauce, on shelf for .69 cents,
The sales force was in a panic, as Fountain was a big part of their sales and they insisted that we had to drop the price to match No Frills or lose huge volumes.
I did the numbers, and convinced the marketing manager, and MD to overrule the sales manager, and we put the price of Fountain up, so it was on shelf at .81 cents, and we started advertising: ‘Rich Red Fountain Tomato Sauce’
The logic was that Fountain at .72 and No Frills at .69, were very close, so the consumer found it sensible and easy to save a few cents, as after all, they must be pretty much the same if the price was so similar.
However, at a price difference of .12 cents, very substantial in percentage terms, but not particularly significant in the mix of a weekly shop, consumers figured that they had to be very different. Fountain had to be the far better product, and the advertising we did confirmed that view. More tomatoes, no filler, ‘Rich Red Fountain tomato sauce’. Our volumes did drop marginally, and our profits went up.
This outcome was not just instinct, it was based on research and experience.
‘No Frills’ margarine was the very first cheap housebrand on the Australian market. It was proposed and supplied by the business that at the time owned Meadow Lea margarine, my employer. I had done quite a bit of research after the launch of No Frills margarine to understand the consequences, and so was lucky to be in a position where I had some understanding of the dynamics that were at play, without at that time having any solid idea of the psychology that drove them.
Later, both Fountain and Meadow Lea allowed the retailers to dictate their strategies, so redirected advertising funds into price promotions, boosting the retailers margins and destroying their brands. Both Fountain and Meadow Lea are now just ‘also-rans’ in their markets, (judging by shelf presence) and neither would be anywhere near as profitable as they were in their heyday.
The lesson is that the intense pressure to reduce price as a competitive reaction is almost always a very bad choice. Resist the pressure and protect profit, without which you will be out of business.
Oct 5, 2021 | Customers, Marketing, Small business
We usually look at objectives and goals as the things we want to achieve. We then set about figuring out the path towards achievement.
There are always hundreds of ways to achieve a goal. Often we find ourselves bewildered by the options, and procrastinating or picking a fuzzy path as a result.
Try drawing a line through the things you will not do to achieve the goal, rather than struggling to pick what you will do.
This will help focus on a path quickly that removes ambiguity and the many opportunities to be distracted.
Over the years I have worked with a number of SME’s in the food industry. In almost every case, the seductive promise of the volumes delivering profitability to be extracted from the two supermarket gorillas is there somewhere. This always confuses the focus on delivering value and building brands for those who care about quality and differentiation before price. In addition, the resources for mass marketing and promotion that are necessary for success beyond an initial flurry in supermarket chains are usually absent in SME’s.
Failing to Recognise the mechanics of the supermarket business model, and the resultant infrastructure necessary to service this model, is a major source of financial and strategic failure of many SME’s in this space.
In those cases, I encourage people to set their goals, by excluding the option of supermarket distribution. Instead, focus their minds on the many opportunities outside supermarkets that better suit the capabilities and resources available.
Sep 29, 2021 | Communication, Marketing, Social Media
As we all know, a camel is a horse designed by a committee.
So it is with many websites.
Digital camels.
Every page on a website should have only two objectives:
- Provide the catalyst to ‘convert’ to the next step.
- Make the conversion easy.
Not every page is a sales convertor, but each page should play a role in the progressive process towards a transaction, whether it be the first, or the twenty first, only the number matters.
The most common response I get when I make these sorts of observations are: ‘we need to educate‘ and ‘the objective of the site is brand building‘.
Both are valid drivers of the content of a website, but unless they ultimately lead to sales, they are little more than platitudes and good intentions.
Is your website just an elegantly coiffured camel?
