Monday, April 27, 2009

Pricing for Product Managers

This economy is presenting both unprecedented challenges and exciting opportunities for pricers.

For those pricing professionals who can embrace the challenge, apply ingenuity and sound pricing strategies, and be agile enough to benefit for opportunities despite the obstacles that the business community as a whole is facing, they can build a foundation of success now that will catapult them ahead of the competition when the economy rebounds.

The Accidental Product Manager blog wrote a very interesting article covering this piece from the product manager perspective, citing the Wall Street Journal's recent coverage of how businesses are coping with the downturn:
"One thing that they’ve discovered is that when the economy tanks, this is a great time to prepare for the future by getting your customers to trade up. This sounds rather backwards right? I mean when times get tough, people tend to trade down. Even though the margins on your stripped down products are skinner, most product managers think that SOME sales are better than none.

"In emerging markets, product mangers have realized something much deeper. They get their customers to trade UP to premium products even though corporate budgets may be tight.

"The key to doing this successfully is to be very, very careful about how you set the prices for the different tiers of your product offerings. You can’t make the price differences between basics and premium products too much or else your budget constrained customers will get turned off.

"Instead, what you need to do is to accept a lower profit margin on your premium products - in fact, lower than most companies are normally willing to accept. However, we are not currently living in normal times. You want to signal to your buyers that your premium products are a good value.

"If you can signal to your customers that your premium brand is offering them more value for the money, then they will be both more willing to trade up to it as well as to stick with it during hard times."

The Wall Street Journal expands the perspective even further, examining how companies can learn survival strategies from companies in emerging markets who, despite the fact the current economic slump is global in scale, are taking the offensive as opposed to hunkering down and hoping the storm will pass.
"As Western companies struggle to navigate the worst economy in generations, here’s one piece of advice: Look at places where volatility is business as usual—emerging markets.

"In these countries, companies have learned they can’t just hunker down when bad times strike. They have to go on the offensive. In Eastern Europe, South Africa and Latin America, managers look at tumultuous times as a chance to implement bold, creative ideas, outflank rivals and boost their business.

"That means coming up with new ways to price their products. Or scrapping old marketing approaches. Or focusing on figuring out where the economy is heading next—and how to use that information to grab market share."

The article gives four tips for businesses seeking ways to survive and thrive in the current downturn:

1. When the economy is down, get customers to trade up.
2. Increase product and service visibility.
3. Rethink what customers value.
4. Look at new metrics.

Read the full article: "Surviving the Downturn: Lessons From Emerging Markets."

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1 comment:

wickedsmart said...

I couldn’t agree more that Product Managers need to come up with better ways to price their products: to do so requires better tools to help make effective decisions regarding strategy, operations, marketing, etc. There is a need in most industries where business leaders struggle with the challenge of optimizing marketing decisions when it comes to resource allocation and pricing strategy. The universe of complexity surrounding marketing decisions due to the proliferation of advertising channels, products, customers, and supplier networks – reaching billions of possible permutations in large organizations – makes human navigation of this complexity impossible.

The solution here is Scientific Micromarket Management, which makes it possible for organizations to assess how each customer values your product and offer exactly that price every day in every market. Capitalizing on these billions of tiny demand shifts with a dynamic pricing system more targeted than human intuition enables companies to finally understand why every single customer buys what they buy from you and what they are willing to pay for it every time. This is far more comprehensive than any pricing strategy; this is a complete revenue optimization solution. These solutions allow companies to actively shape their markets through the probabilistic prediction of future outcomes, to stay ahead of continuously shifting market demand through the realization of market awareness, and to achieve unity of direction and coherence of decisions across organizational units. The solutions provide immediate and enduring impacts on the organization’s financial performance and competitive strength, and allow companies to lead their markets by turning complexity into competitive advantage.

Joe Smiley
Sentrana
http://www.sentrana.com