Pragmatic Marketing’s activity/box of the month is Product Portfolio. Combine this with pricing and you have a gold mine of great content ideas.
The most important concept at the intersection of these two topics is this:
Knowing how to price product portfolios helps you CREATE much more profitable product portfolios.
You see, pricing a portfolio after it has been created is interesting and useful, but building a portfolio around your pricing strategy is powerful.
There are two key pricing strategies to use for portfolios, versions and complements. Versions (also known in economics as substitutes) are multiple products that you expect your customers to choose between. Complements are products that you expect (hope?) your customers will purchase after purchasing another item from you.
One example of versions is first class and coach seats in an airplane. People tend to purchase one or the other, not both. Some people choose the expensive one, some the inexpensive. Creating a set of products with the right versioning strategy can get your customers who aren’t price sensitive to pay you more, while still getting the price sensitive customers to purchase from you.
Examples of complements include razors and blades, printers and ink, movies and popcorn. The strategy here is to have a product your customers use to make a decision and price that aggressively. Then, for the complementary product (blades, ink, popcorns) you charge higher margins because there is less or even no competition. Here we win customers with the decision product (razors, printers, movies) and then make profit with the complementary product. Of course it’s perfectly OK to make profit from the decision product as well.
Pricing product portfolios isn’t about putting prices on a product in a portfolio. Rather, it is really about understanding pricing and using that to create a portfolio that rocks. When you clearly understand how to price a product portfolio, then you are in a position to create a portfolio that is extremely competitive and captures much more of the value you deliver to your customers.
Photo by Tanguy Ortulo
This article in the International Business Times reports that Walmart may match lower prices from on line retailers. Walmart already price matches other retailers, but so far has not ventured so deep to match prices with Amazon. Is this a wise decision or not?
First, the key reason companies should offer price matching is to reduce price competition. When one company says they will match competitors prices, then there is no incentive for competitors to lower their prices. As a general rule these clauses reduce incentives to compete on price resulting in higher industry profits.
However, it seems highly unlikely that Walmart is thinking this. Even a behemoth like Walmart surely can’t think they can influence Amazon’s pricing strategy. So there must be another explanation.
This is more understandable when we break the market into segments.
1. There are a group of people who believe Walmart has great prices and just shops and buys without comparing to online prices.
2. There are a group of people who will buy online and won’t even consider shopping at Walmart.
3. There are a group of people who shop at Walmart, but still check Internet prices to see that they are getting a good deal.
Segment 1 will purchase at the regular price. No discounts needed to win their business so the price match makes no difference. Segment 2 will not buy from Walmart so the price match makes no difference.
The big question is what happens with segment 3. If Walmart doesn’t price match, then these guys will not buy from Walmart if they find the same product cheaper on line. By offering price matching, Walmart wins customers they wouldn’t have won otherwise. These customers may purchase at prices lower than Walmart wants, but they are likely still profitable.
So, without price matching, Walmart wins segment 1 at full price. They probably don’t win segment 3. With price matching Walmart wins segment 1 at full price AND they win segment 3 at lower prices. Overall Walmart makes higher revenue and higher profits, but a lower average gross margin.
The article says that Best Buy recently offered price matching with Amazon and their margins went down by 4%. The article implied this is bad. However, this could be a positive because Best Buy is really winning customers they wouldn’t have won otherwise, those in segment 3. This result is the same result Walmart should expect if they offer price matching. Margins will go down a little.
The article provided another big reason Walmart may want to offer price matching. Walmart has an image of the low price leader, but this image can be damaged if buyers can consistently purchase on line at prices lower than Walmart’s. Price matching helps Walmart maintain their low price brand.
Price matching, at least for Walmart, seems to make sense. What about your company? Presented here were three reasons you might consider offering a price match: reduce price competition, win new market segments, and enhance your image as a low price leader.
The question: Does price matching make sense for you?
If you’ve got a passion for products, you’re in luck. Come join us Saturday (Nov. 15) at the unconference to end all unconferences: 2014 ProductCamp SoCal in Anaheim, CA.
We’re excited to participate as a platinum sponsor at this collaborative one-day gathering of product and marketing professionals. In fact, our very own John Milburn will be on hand to discuss “Organizational Structure: What’s Working and What’s Not?” at the morning general session.
ProductCamp is known as an unconference because anyone can propose topics for each of the breakout sessions.
If you plan to be in the area, we’d love for you to join us for a unique, fun experience. Come learn, share and connect with John and hundreds of other people at ProductCampSoCal. Attendance is free.
Learn more and register at www.productcampsocal.org.
In Pragmatic Marketing’s October webinar, Tony Zambito, a leading authority on buyer persona development and buyer insights research, discussed how companies can connect with buyers by tapping into their emotions to attract, nurture and convert them into genuine leads.
The number one marketing challenge companies face, according to Tony, is how to connect with their buyers. Digital technology has made more tools available to buyers but it has also changed the way buyers interact with the market. People are tired of corporate and product speech. There’s a sense that competitors all say the same thing and none of it feels relevant.
Although companies tend to quantify and objectify their products and services, every product or service has a human story behind it, filled with drama and emotion. In fact, emotion plays a key role in human-based marketing efforts. In a study of 720 senior executives, more than 65 percent said they rely on subjective insights and emotions when making decisions. Companies that only focus on the 35 percent of executives who use sales intelligence to make their decisions are missing out on a lot of potential buyers.
Buyer personas are an effective element of a human-centered approach to marketing. They are archetypal representations of real people, their goals and their human stories. They tell us what’s happening in the world of these buyers.
Goals are at the heart of buyer personas. The more companies can understand why a goal is important and why someone behaved a certain way to accomplish the goal, the closer they will be to connecting with that particular buyer. Companies can discover a lot about buyer emotions and the best ways to market to each buyer persona by asking:
• Why is something important for this person and this buyer?
• What is driving them to accomplish this particular goal?
• What are they doing to accomplish that goal?
• How does my company help that person?
Companies can further increase their odds of connecting with buyers by focusing on these seven ways to humanize their marketing efforts.
Research the human story, not just intelligence. Sales intelligence focuses on KPIs, buying criteria and initiatives but misses the human-centered stories. Effective buyer personas focus on human-centered insights rather than on sales intelligence.
Human context matters. Talk to customers and buyers directly using sound, qualitative research techniques so they will describe their human-centered stories.
Focus on goal-centered emotions. It’s important to understand which goal-directed behaviors are driving decisions. Ask about personal goals, business goals and experience goals.
Seek to understand the unarticulated mindset. People often have a hard time expressing what they’re feeling and thinking. But their attitudes, perceptions and previous learning represent their world view and influence their decisions.
Focus on the contextual path to purchase, not the generic buyer’s journey. The same product may solve different problems for each buyer. Don’t lose focus of the context by trying to force-fit a generic description of how companies think someone will buy.
Use buyer personas to listen to buyers. Embrace story listening before storytelling to understand the particular goals, scenarios, attitudes and beliefs that actually influence buyer behavior.
Connect to the human story behind the product. Buyers have little tolerance for marketing that doesn’t connect to their story. Understand the human standard approach as it relates to marketing.
For more information about humanized marketing and creating effective buyer personas, listen to the full webinar with Tony and the Pragmatic Marketing team.
A lot of practical considerations are necessary to successfully manage your company’s product portfolio.
Pragmatic Marketing is pleased to host Mike Smart and Nils Davis, founder and consultants of Egress Solutions, at our upcoming webinar, Wednesday, November 19, 1:00 – 2:00 p.m. EST. In this webinar, you’ll learn about tools and techniques for successful product portfolio management, including metrics to gauge portfolio health and terminology to keep everyone on the same page.
Join the team from Egress Solutions as they explore this topic and come away with tips and best practices to help you successfully manage your company’s product portfolio. Register now!