Posts by Creative Digital Ideas

Digital Product Strategist with over 10 years of experience in web analytics, mobile and web technologies, market and user research ,...

Pricing Strategies

Pricing a new product is probably the most difficult marketing task: set the price too high will encourage competitors to enter in, too low and you are out of the market pretty soon.

Though pricing strategies can be complex, the basic rules of pricing are straightforward:

–   All prices must cover costs and profits
–   The most effective way to lower prices is to lower costs.
–   Review prices frequently to assure that they reflect the dynamics of cost, market demand, response to the competition, and profit objectives.
–   Prices must be established to assure sales.

 

The most common strategies are:

What the Market Will Bear

In a non-competitive market, companies might employ a strategy that optimizes profits. This strategy sets the price based on the maximum price the market will pay for the product.

Examples of no-competitive marketplaces: 1) Semi-monopolistic markets (e.g. credit ratings); 2) Early Adopters.

 

Gross Profit Margin Target

A gross profit margin is a difference between sales and the cost of goods & services sold divided by revenue. This represents the percentage of each dollar of a company’s revenue available after accounting for the cost of goods sold.

If a company produces phones and earns $32 million in sales but pays $24 million for the items sold, then the company’s gross profit margin would be ($32M – $24M) / $32M = 25 percent.

Profit margins are very dependent on sector/vertical:

  • Manufacturers typically aim for a GPMT of 50%
  • Distributors (Wholesalers) usually need a GPM of 10 to 15%
  • Dealers (Retailers) require a GPM of 30 to 50% (the higher percentage is for retailers that have to train people to use the product and the lower margin is for retailers that are selling a product that does not require after-sale support)

 

Most Significant Digit Pricing

Psychological pricing (also price ending, charm pricing) is a pricing/marketing strategy based on the theory that certain prices have a psychological impact. Studies and experience show that sales will be significantly higher if a product is priced at say $29.95 or $29.99 instead of $30.

 

Combining all three

If a product is positioned as unique, smart marketing companies will typically use all three of these strategies in combination. The new iPhone 7, e.g. is prices at $799, $479 , etc …

 

 

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Blockchain 101 – A Visual Demo

This is a very basic visual introduction to the concept behind a blockchain.  Anders Brownworth  introduces the idea of an immutable ledger using an interactive web demo. If you are interested in playing with this on your own, it is available online at:

http://anders.com/blockchain/

The code that runs this demo is also on GitHub:

https://github.com/anders94/blockchain-demo

What is the Blockchain

What is the blockchain? If you don’t know, you should; if you do, chances are you still need some clarification on how it actually works. Don Tapscott is here to help, demystifying this world-changing, trust-building technology which, he says, represents nothing less than the second generation of the internet and holds the potential to transform money, business, government and society.

Distributed Ledger Technology – the UK Government position

A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. The assets can be financial, legal, physical or electronic. The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger. Entries can also be updated by one, some or all of the participants, according to rules agreed by the network.

 

Full report: Distributed Ledger Technology: Beyond Block chain – by the UK Government Office for Science.

The Future of Financial Institutions: An ambitious look at how blockchain can reshape financial services by the World Economic Forum

 

The World Economic Forum’s analysis has yielded six key findings regarding the implications of distributed ledger technology (DLT) on the future of financial services:

  1. DLT has great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes.
  2. DLT is not a panacea; instead it should be viewed as one of many technologies that will form the foundation of next generation financial services infrastructure.
  3. Applications of DLT will differ by use case, each leveraging the technology in different ways for a diverse range of benefits.
  4. Digital Identity is a critical enabler to broaden applications to new verticals; Digital Fiat (legal tender), along with other emerging capabilities, has the ability to amplify benefits.
  5. The most impactful DLT applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying implementation.
  6. New financial services infrastructure built on DLT will redraw processes and call into question orthodoxies that are foundation to today’s business models.

 

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The analyzed business use case are: a) Payments; b) Insurance; 3)  Deposits and Lending; 4) Capital Raising; 5) Investment Management; and 5) Market Provisioning.

These key findings are explored in depth in the The future of financial infrastructure  report, based on the use case deep-dives conducted across financial services.