Sunday, September 16, 2012

I’ve Just Seen the Coffee Shop of the Future, and it ain’t Starbucks!

I’ve just returned from Bangkok, where I ran a two-day workshop called Pricing Excellence. On the Sunday before the workshop, I went down to Siam Square to do a bit of shopping, and stumbled across the coffee shop of the future.

Nestled up on the third or fourth floor of the Paragon Centre is True Urban Park. What attracted me to it, and I didn't even feel like a coffee at the time, was the enormous red and black flap display that simply read “True”.

Upon entering the cafĂ© and in front of the flap display, you find a florist selling fresh oriental flowers. Turn to the left and there are PC’s, lounge chairs and sofas where you can surf the Internet and watch your tweets come up on a huge Tweetdeck “megawall”. In the back corner there’s a selection of books, CDs and DVDs you can browse.

To get to the other end of the shop, you walk through a nicely laid out ‘gadgets’ section, where you can browse and buy all the latest smart phones and tablets with the assistance of plenty of attentive and helpful staff.

This takes you to the coffee bar, with a fairly extensive and affordable menu (a cappuccino and cake cost the equivalent of $A5). Sit down in front of another Tweetdeck “megawall”, and you can either watch whatever is showing on HBO, enjoy the free Wi-Fi access or, plug your preferred Apple device into one of the leads on the coffee table and listen to your choice of music as you sit under a “Sound Tube”.

Readers are probably thinking to themselves right now “What has this got to do with Pricing?” Shouldn’t this be appearing on UrbanSpoon, or some other ratings and reviews website? Well maybe it should, but there are also some important lessons here for retailers and other industries:

  • Firstly, the flap display is impressive and enticing. It just makes you want to walk into the store, and what retailer doesn't want more foot-fall these days?
  • Furthermore, the one word that appears on the flap display is powerful, and chosen, I imagine, to reflect their beliefs, their value proposition;
  • Interestingly, you can’t experience True Urban Park online. They don’t have a website, although they do have a Facebook and Twitter presence;
  • But most importantly, and what I liked the most, is the fact that the store has multiple revenue streams, offering products and services that appeal to different market segments (coffee lovers, book lovers, gadget lovers, flower buyers, etc.) 

There is only one True Urban Park store, and it wouldn't have been there for six years if it weren’t doing something right. This is a location I would happily call my “third space”, much to the disappointment (I imagine) of Starbucks.

Tuesday, September 11, 2012

Time for a Pricing Spring Clean?

Last weekend was the first of the Spring, and right on queue, Melbourne turned on the sunshine. All over the city, lawn movers were heard and barbeques had their winter cobwebs blow away, in anticipation of more sunny days just around the corner.

These activities obviously beg the question: what would a Pricing Spring clean look like? Here are five suggestions…

#1. Revisit your Market Segmentation
Many companies miss the point of market segmentation. They give their customer segments great names and descriptions, but if market segmentation is not actionable (ie, you advertise differently to them you price differently to them), then its not worth the paper it is written on.

Take a moment to re-run all your customers through your market segmentation model and recalibrate your segments. This is an exercise the Royal Bank of Canada do every month, actioning the results with segment-specific offers, marketing collateral, and the like.

#2. Optimise Discount Schedules
Customers these days, in both B2B and B2C markets, love a bargain (and accompanying bragging rights) just as much as they love the hunt for that bargain.

There’s no point optimising list prices when no one is paying list price. Instead, take a look at (and fine tune) your discounting schedules to maximise revenue.

#3. Get Ready for Summer
Many business have a seasonal element to them, often most pronounced over the summer. What are your forward bookings or reservations like? Do you have to prepare for the obligatory Boxing Day sale? What are you going to do if your competitor launches their Boxing Day sale earlier than you?

These are all contingencies that Leading Companies should start to think about, and plan for, now.

#4. Scan the Competitive Market
Winter is a time when a new competitor may have been preparing their assault on your market, or existing competitors have been working on a new product initiative.

Do a quick but thorough scan of the market for new or potential competitive threats, be they companies or products.

#5. Go on a Ride-Along
As I mentioned in my last column, Pricing is not about economic theories: it’s about human (customer) behavior, and you can’t see that behavior from corporate headquarters.

Spring is a great time to be out and about. Go down to the call centre (if its still in Australia) and listen in on some calls by the telesales staff. Better still, jump in the car with a sales rep and go visit a customer. See how her business if fairing in these tough economic climate. Better still, spend ‘a day in the life’ of a customer.

As with a Spring clean at home, once you get into it, you find there is so much more you can, or have to, do. Your Pricing Spring clean won’t be any different.

[This post also appears on LeadingCompany, 13th September 2012] 

Monday, September 03, 2012

The Pricing Denial Traps: 10 Things to Avoid When It Comes to Pricing

Last week (29th Aug 2012), I was interviewed by Business Essentials for their monthly audio CD. There will be an audio recording in the PricingProphets Press Room soon, but in the meantime, here's a transcript of the interview...

Jon, you say that many businesses fall into “denial” traps when it comes to pricing. Is it because pricing is part art, part science and actually pretty hard to get right?

Those three reasons you’ve mentioned are all factors. But in addition to that there are a number of other explanations….

a)    Some companies don’t even consider the art vs. science debate. Pricing is seen as a cost recovery exercise
b)    As a result, many companies think they can only charge what the market will bear. That's a sign that companies don’t understand and communicate the value they deliver, and finally;
c)    Some companies think pricing is easily reversible, so if they put prices down, they can easily be raised again later on

Business is hard, retailing is very hard, and there are discounts everywhere. In this sort of business environment, isn’t it particularly difficult not to follow the herd in reducing prices?

In some product market, there is no doubt that's the case. Particularly in consumer markets, customers love a bargain, just as much as the hunt for that bargain. What this means is that companies need to look not only at price optimization, but also discount management and containment, omni-channel retailing strategies and differentiation on the basis of non-price factors such as quality, service, availability and after-market sales and support.

To keep our pricing strategies on track, you’ve come up with a list of 10 things to avoid in our pricing. The first no-no is using pricing as a go-to-market strategy. What do you mean?

Its amazing the number of companies that go through a huge product development process, and then when they get to the end of that process, and they are just about to launch, they work out what price they should charge. This is not the best way to do pricing.

A better approach is to actually start with pricing. Ask customer what price they are prepared to pay for a product of service, and then build a product for that price point. This way, pricing is a forethought, part of the product development process, and there is a much greater likelihood that the company is providing value with a product that will sell.

Then, using pricing to fix a profit and loss problem in your business?

This is very common: We’ve got a $1mill hole in the budget, lets fix it with a price increase. Unless that price increase is based on an improvement in value, this approach is company-focused, rather than customer centric, and is unlikely to succeed.

You also tell us that we should always avoid an across-the-board approach when it comes to adjusting our prices. Why is that bad strategy?

Well, most companies sell more than one product. Across-the-board price increases often leave money on the table, as some products will be in greater demand, provide greater value, and can support greater price increase. Yet that value is being monetised by an average price increase across the entire product portfolio.

You’ve warned us before about cost-plus pricing. This is another item on your list. Tell us again why we should avoid it?

Quite simply, customers don't buy from you because of what it costs you to manufacture a good or provide a service. They buy from you because of the value they receive. It is easier to defend a price point based on value, rather than costs.

Then there are dangers about making assumptions about competitors…or following their lead on pricing?

Indeed. Many companies have a very narrow competitive set, when in fact, customers’ choices are much wider. Unless you’re selling a commodity product, there’s a fairly good chance your product is an apple, a competitors product is an orange, but there are other varieties of fruit that customer can substitute apples and oranges for.

What about gut instinct on pricing…isn’t there space for that in working out your pricing?

Yes there is, be that intuition, sales force or customer feedback. But just as important, maybe more so, is hard numbers and quantitative analysis, of historical sales, demand for compliments and substitutes, economic data and so forth.

Many businesses look at price changes at regular points in the year, eg 1st July every year. What’s wrong with that?

The problem with this approach is that market conditions don’t change on the1st of July every year: seasonal demand patterns over Christmas or summer may not be clear, competitors don’t always launch on the 1st of July. The fact is that, unless you are in a highly regulated market, any sort of change in market conditions should prompt some sort of pricing review

Then, there’s scenario modeling. Isn’t that quite a good idea?  

There’s nothing wrong with scenario modeling. In fact it is to be commended. Where I see companies in denial is they like a certain scenario because it delivers the outcome they are seeking without any due diligence on the likelihood of those scenarios materialising

And finally, do companies really say price changes are “unfair on customers”?

Believe it or not, you occasionally hear companies say we can’t increase prices because it is “unfair on customers”. You run a business and customers are free to choose whether to buy your product or not. However, if you link your price increases to changes in value, communicate and execute price changes effectively, customer will continue buying from you.

So those are a lot of don’t’s, with some alternative strategies that will work much better for us and our businesses. If there’s one standout message about pricing, though, what would it be?

Pricing is getting really scary for a lot of companies and industries, whether due to the Internet and online retailing in consumer markets, or powerful procurement departments in business markets. In both types of market, companies need to change their mindset from an internally, cost-focus approach, to a customer-centric, value-based mindset.