One of the best ways to manage pricing is to regularly assess the price sensitivity of your target market and adjust accordingly.

Pricing research is considered a challenge by many companies.  They are not sure how to do it and whether the results will be effective.  But there are a few tools for doing reliable – and powerfully useful – pricing research.  The traditional approach has long been Van Westendorp’s price sensitivity meter, which starts with four basic questions: 

1. At what price would you consider this product so expensive that you would not consider buying it? (Too expensive)
2. At what price would you consider the price of this product so low that you’d question its quality? (Too cheap)
3. At what price would you consider the product starting to get expensive – not out of the question, but you’d need to give some thought to buying it? (Expensive)
4. At what price would you consider the product to be a bargain – a great buy for the money? (Inexpensive).

The answers are then plotted on a graph and analyzed. More info on the process can be found here. 

There are also newer tools that enable managers to test various price / product scenarios in a very cost effective way. These methods employ conjoint analysis, which presents various options to buyers and gathers input on their price sensitivities and preferences.  Much has been written on conjoint analysis, and it’s a tool we use whenever possible to get insight on price sensitivity – here’s a quick primer on conjoint analysis from one of the few companies who build software to deploy conjoint analysis : http://www.sawtoothsoftware.com/download/techpap/undca15.pdf

These two tools are useful ways to gain cost effective and actionable insight on pricing strategies, for lean times and for good times.

His message is that the modern corporate environment, in which shareholders who have no real ties to the companies they own but do control all the actions of those companies, exerts a negative influence on the companies, their employees and their communities.  It creates an environment that forces managers within those companies to lead inauthentic lives, which causes them to lose their moral compass, which leads them in turn to behave ever more inauthentically.

It’s a complex argument, but Martin lays it out well.  And his message is that this situation is totally unsustainable because it ultimately leads to decreases in shareholder value.

What’s missing from the article, though, is the solution.  How do large organizations remedy this problem?  How can large, public businesses serve their communities and their employees as well as their shareholders?

I think one solution lies in the business model of employees as shareholders – like WestJet.  This ensures alignment between the corporation’s financial returns and those who generate them.  It reduces one of the complexities of a model in which there are 3 primary stakeholders – customers, employees and shareholders.  Ie, it reduces the model to customers / company.

There are other ways – what have you seen that’s working?

In a previous post I discussed using social media to collect feedback from customers and channel partners. That is one way that social media is being used by companies. Another is as a research tool — social media makes it easy to reach out to large populations without renting research facilities and paying people large sums for their time; it’s also a great way to generate user insights – which can be difficult in a purely research environment.

Here are three ways that companies are using social media for market research:

Content Mining

These days, content mining is seen as ‘grabbing as many opinions as you can with regards to a certain topic, industry, news event or company.’ That’s a tongue-in-cheek definition, but not far from the truth. As mentioned in the previous post, content mining is a great customer satisfaction assessment tool – though it can also be used to perform more general market and competitive analysis.

Content mining doesn’t require highly skilled researchers and is relatively easy (if tedious) to perform. It’s also inexpensive to outsource – Cymfony http://www.tnsmi-cymfony.com/ is one company that provides content mining services.

Moderated Social Groups

These consist of corporate-created groups, such as consumer forums, panels, sponsored online communities and online focus groups.  Because they are moderated and the ‘theme’  is already set, they are easy to set up and maintain. They can provide good consumer insights and can give you an idea of what consumers might be looking for in future products or services.

http://mystarbucksidea.force.com – which I mentioned recently – is a good example of how this can be done on a large scale.

http://forum.matrox.com/rtx2/ is a smaller example of an artificial, company-sponsored online community.

Netnography

‘Netnography’ is a qualitative, interpretive research methodology that adapts the traditional, in-person ethnographic research techniques of anthropology to online cultures and communities. Like the other two methods I mentioned above, it tends to provide actionable insights in an unobtrusive manner and in a context that is not fabricated by the researcher. Unlike the two other methods, it requires highly-skilled researchers who can participate as natural members in these communities when needed, and know which cues to pick up on.

If you’re interested, Robert Kozinet’s  “Netnography” is a good place to start. It can be read for free here, but you do need to sign up for an account, and the link will only work for 30 days.

Ever since then I’ve been working to take more of Canada to the world.  Canadian businesses are so often great at what they do, but not great at telling others about it.  So I (and Mezzanine) spend my time marketing those great companies to the world, and at home.  We shout their praises from the highest mountain tops so that others know about them and how great they are.  These companies deserve to be recognized as world leaders for what they do – and to enjoy the financial rewards of their innovation, initiative and hard work.

I’m enjoying watching the Olympics and seeing Canada pursue an aggressive goal and achieve it.  This is an exciting time.  I hope it’s the start for all of Canada – not just the sports world but the business world too – to pursue their rightful positions as global leaders.  We have every reason to do so.

Archive.org allows you to dig up past versions of a company’s website. If one of your competitors wrote a case study in 2005 that you want but is no longer on their website, archive.com might be able to help you find it. Using Archive.org also lets you see how your competitor’s go-to-market strategy has evolved over time.

Spyfu. This is a goldmine for understanding competitors’ online advertising. Using it, you can determine what keywords your competition uses for AdWords, what their daily AdWords budget is, and what their daily traffic volume is. And that’s just the tip of the iceberg.

Slideshare.net is essentially a search engine for PowerPoint presentations… but it is usually possible to dig up ‘confidential’ presentations and templates that can be very informative.

LinkedIn can be used for more than just social networking. It can give you estimates on a company’s size, its turnover, and what positions, if any, are currently open. But be careful – for smaller companies (under 100 people) LinkedIn is usually an inaccurate portrayal of current staffing.

How can a business do this? It isn’t as mysterious as having a crystal ball. The great innovative companies that I’ve seen do it through these four tools:

1. They use customer insight and competitive intelligence tools that work, and they try new ones as they emerge.  (I’ll write about some cool new competitive intelligence tools in my next blog.)
2. They have internal and external feedback mechanisms to track customer and employee satisfaction and capture ideas.
3. They have structures that are lean and nimble so they can innovate and implement new ideas quickly.
4. They are open to the possibility that they don’t know everything, and build structures to allow them to tap into market movements that are difficult to foresee.  One tool for this is a Gambling Fund.  I’ll also write about this in a later blog.

The message for business: don’t turn your good product into a trendy item that may have a great ride up, just for the glory of it – because it may mean an unnecessary and untimely ride down.

What’s even more important than the business plan document, though, is the business planning process. I have seen many companies come to new and important realizations about the key success factors and obstacles for their concepts by working through the business planning process, by conducting good research, and by projecting financials.  They make smarter decisions faster and more cost-effectively through business planning than they would by launching and trying things out.

So while a business plan is incredibly important, it’s the process, not the outcome, that matters most.

Here’s what we did to help get clarity on which opportunity to say YES! to, and which to say NO to.

a)      Define goals.  For the fashion industry CEO, it was the classic entrepreneur goals: autonomy, impact, challenge, flexibility, decent financial income, and the ability to build an asset that is one day saleable.

Whatever your goals, everything you pursue has to start here.

So lay out your goals and constantly refer back to them when evaluating opportunities.

b)      Define each of the opportunities.

1. What is the business concept?
2. Who is the target market?
3. Why do they need it / why will they buy it / what’s the value to them?
4. What will it take (time, money, people) to deliver the concept
5. What are the economics of the concept
   • Revenues minus Costs equals Profits

You may not have all the answers to economics question – that’s ok, do a thumbnail, highlight what numbers you’re least certain about, and do follow up research if you need to validate your numbers

c)       Evaluate the opportunities relative to your goals.

Last night, of the CEO’s four opportunities, it quickly became clear that 2 would be a huge amount of work, for meager returns.  It was easy to toss these out.  A third offered reasonable potential returns, but the risk of it not working out was high.  The fourth looks very exciting.  It is clearly differentiated, the market opportunity is strong, the company is in a unique position to be able to deliver it.

This was a great process for the CEO.  She had come into the session with a ‘gut feel’ that the opportunity we eventually identified as best was the best, but she didn’t have any way to articulate that or quantify it.  And that’s a challenge in the business world:  intuition is valuable, but even more so when you’ve gone through a process to validate it.

So the next step is to figure out the steps to pursue that opportunity.  This is where the CEO wanted to be all along, but before we went through this process, she didn’t have the ability to commit to this one opportunity and throw her all into it.  Now she does!

If your organization faces numerous opportunities, I encourage you to go through this kind of process to winnow the ones that aren’t worth your while, and to help you give it your all to the ones that do.