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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How to generate product ideas: a practical example

Opportunity Statement

Teenagers who like to sleep in late need an easy way to eat breakfast on the go because they don’t have time to eat breakfast before leaving their home and yet breakfast is the most important meal of the day.”

 

First list as many ideas cross your mind

Listing ideas

  1. Healthy smoothie hold the backpack/car/scooter/etc… drinking holder.
  2. Breakfast bars that attached to the phone arm holder.
  3. Frozen nutty fruits licorice sticks to be consumed on the go.
  4. Yogurt easily resealable with a stick attached.
  5. Granola in a top zip bag easy mixer.

 

Then, remove any physical constraint limiting the flow of ideas.

Eliminating a constraint

The teens consume breakfast by themselves at home.

  1. Mini muffin sandwiches in a top zip bag for easy sharing.
  2. Mini sharer plate for bus/car consumption (with friends).
  3. Music food-box container with the latest hits for impromptu parties.
  4. Friends-sharing application for a healthy lifestyle (exercise counts, calories counts, track of eating habit).
  5. VR Breakfast Go app.

 

Then, make an association with any event related to the target audience.

Make an analogy

If eating breakfast on the go was like having a fun party.

  1. Bright colorful breakfast food and drinks.
  2. Carillon type food boxes.
  3. Friends having breakfast together at each home on rotation.
  4. Friends bringing breakfast food to share.
  5. Theme breakfast parties on the go.

 

Then, go for the maximum.

Exaggerate

Teenagers need to eat 10 apples every morning for breakfast to be healthy

  1. Large apple juice made of 10 apples.
  2. An apple pie to be eaten daily.
  3. 10 apple/peanut butters sandwiches.
  4. A 10 apples waist holder for an easy eat on a go.
  5. A waist that includes holders for: a. A medium juice cup; B. An apple/peanut butter sandwich; C. an apple pie slice.

 

Is the writer block still impacting your flow of ideas? Then list those you will never recommend.

Get in the garbage

  1. Breakfast electronic dispenser in the teen’s room.
  2. Breakfast’s substitute energy pills.
  3. Gwyneth Paltrow style daily £400 energy smooth.
  4. Music cup that activates on drinking.
  5. Kick-off bed to ensure the teen is not late.

 

Finally, select the best idea based on well determined criteria.

Most useful idea

Healthy smoothie hold the backpack/car/scooter/etc… drinking holder – it uses existing gadgets, no risk for spilling the content, easy to prepare, fast to consume, full of healthy benefits.

 

Most Desirable idea

VR Breakfast GO app – apart from encouraging kids having breakfast by sharing their experience online with friends, it could promote a healthier lifestyle by imitation – e.g. advocating walking to school, additional activities, healthy breakfast/lunch/dinner/…  

 

Easiest Idea

The mini sharer plate for easy consumption with friends – almost every household has a sharer plate, alternately buying one is not expensive. Sharing breakfast with friends should improve the overall experience.

 

Most functional

Breakfast bars that attached to the phone arm holder – because it uses the unexplored and hidden functionality of an existing gadget.

 

Most Sustainable idea

Frozen nutty fruits licorice sticks to be consumed on the go – no waste produced, all are eatable pieces.

Blockchain and IoT: cool resources

 

A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority (source: Steven Norton – WJS blog) .

Here a list a cool resources:

  1. IBM Blockchain Garage: IBM Blockchain has joined the Hyperledger Project to evolve and improve upon earlier forms of blockchain. Instead of having a blockchain that is reliant on the exchange of cryptocurrencies with anonymous users on a public network (e.g. Bitcoin), a blockchain for business provides a permissioned network, with known identities, without the need for cryptocurrencies.
  2. SkuChain: technology based on the ‘Collaborative Commerce’ vision where trade partners can interact in a friction ­free manner , gain deep visibility into their supply chain so they can make smart forecasting decisions, and not be constrained by cash flow helping them compete. Skuchain applies the cryptographic principles developed in the Bitcoin network to security and visibility for the global supply chain. As goods travel from manufacturers to distributors to consumers, the crucial electronic information of what the item is and where it came from becomes disconnected from the SKU itself. A blockchain offers a universal, secure ledger by which SKUs can attest to digitally to their orgins and attributes. Skuchain is building a system of next generation identifiers in the form of both barcodes and RFID tags to digitally secure the transfer of goods across the entire global economy. While most anti counterfeiting systems rely on copy restistant labels, holograms etc., skuchain relies on the uncopyable nature of a blockchain ledger to solve the problem of supply chain integrity Skuchain’s system will provide cryptographic proof of each SKU’s origin, supply chain than can be verified all the way to the point of consumption.
  3. Z/Yen: Z/Yen is the City of London’s leading commercial think-tank. Z/Yen was founded in 1994 to promote societal advance through better finance and technology. In 2015 Z/Yen launched Distributed Futures, a senior forum dedicated to technology and disruption, for subjects such as mutual distributed ledgers (aka blockchain technology) and artificial intelligence. Current project: MetroGnomo – an open-source experimental timestamping service based on Z/Yen’s ChainZy mutual distributed ledger technology. MetroGnomo’s replicated authoritative immutable ledger provides proof that a given piece of information existed, or event happened, at a given time. The provision of impartial timing information and unique identifiers enables improved coordination, cooperation, integration and dispute resolution between and within firms. More information…
  4. Gemalto: is an international digital security company providing software applications, secure personal devices such as smart cardsand tokens, and managed services. It is the world’s largest manufacturer of SIM cards.

HyperLedger London Chapter meet-up – to keep up to date with the latest market trends.

Blockchain Adoption: Industry Requirements and the Role of Prototypes

 

Moments of truth vs. Micro-Moments

Moments of Truth  is a Journey mapping term, and can occur outside of the digital experience. An example being opening the front door of a shop and walking in for the first very time.

 

Micro-Moments is a phrase coined by Google. They are rooted in the mobile experience: primarily grab the smartphone moments where a person seeks for answers, information, or tries to complete a task via digital.

Best Articles about the “Internet of Things”

 

Everybody’s talking about the internet of things. Here few of the best:

 Readwrite

Amazon Debuts ‘Dash’ Stick for Scanning, Adding Groceries to AmazonFresh (in PC MAG, April 5 2014 – by David Murphy)

Wearables: one-third of consumers abandoning devices (in The Guardian, April 1 2014, by Charles Arthur)

Tim O’Reilly on Twitter

Amazing talk by Jack Schulze from Berg for the MIT Media lab

Breakfast NY