Pricing: Marketing rules you cannot ignore

 Pricing: The necessity of following basic market rules in order to be successful

 

Study Case

In the last few months a lot of consumers in Denmark experienced a shock when the market leader in milk products Arla increased the prices of fresh milk, both ecological and regular, by correspondingly 14 % and 25 %.

 

Otherwise no mystery there, prices do go up more or less on a regular basis. However, the reasoning behind the decision becomes quite unclear when one looks at market rapports quoted by the Danish press showing that demand is falling and the reason seems to be the high price of milk.

Even more mystically, the price of regular milk jumped with 25 % as reported and reached almost the price level for ecological milk. All this despite the fact that other producers still keep prices of regular milk on a price level 33 % lower than the Arla’s prices even after the recent increase of their own prices.

 

The net result for the company is yet to be measured, however the trend is for grocery chains to periodically put Arla milk on offer in an attempt to sell it or bail on it completely (observed at Kvickly, Rema 1000 and Netto, Denmark, September and October 2013). As for the consumers there is little doubt that they will choose the lowest price of the same product class and thus ditch the pricy Arla milk which does not offer anything beyond what other brands are able to provide on a much lower price (see an article on the topic, in Danish!).

 

Pricing

Pricing is usually decided on by conducting marketing research, evaluating demand, and benchmarking with competitors. A company could employ different pricing strategies depending on market position, brand value, product value, availability of alternative products, demand and supply. A market leader can often put pressure on the market by increasing its prices if there is an indication that either competitors will follow or consumers will stay loyal to the brand. The other way around, which also seems to be the case more commonly, the market leader can win the battle with competitors by lowering its prices to levels unreachable for smaller companies.

However, either move has its risks and limitations. While the risks seem to be easier to identify, the limitations are hidden within the corporate policy and corporate marketing strategy. Lowering or increasing prices is not always an option, as for example, a low cost brand cannot out of the blue come up with pricy products marketed as top quality. Similarly, an expensive brand can seriously damage its image by lowering inexplicably its prices only to win customers over.

This is the reason why low cost brands committed to changing business profile to quality need to go a long way. And this is the reason why many regular or expensive brands employ countless discount tricks in order to sell or to attract new customers.

The marketing policy aside, prices need to be compatible with business logic. Increase in prices should mean increase in quality, higher costs along the supply chain, new taxes, or market monopoly. Most importantly, that logic needs to be translated to consumers. They need to understand why they are supposed to buy your brand and pay more for it now than before.

If you skip that simple step you risk losing your otherwise loyal customers. An example can once again be the Danish dairy queen Arla. When they increased their prices in a country still in crisis and with price conscious consumers the result just a month later is almost constant discounts and special offers putting the milk price below the level from before the increase. Would Arla do that if they were not losing too many customers?

The problem with the increase was that it did not make any sense. No higher quality, yet much higher than the average price of competitors and just few Euro cent under the price of ecological milk which traditionally is sold on much higher prices. Why buy it?

To be successful you need to remember that no matter which pricing policy you choose, it is essential to communicate and explain your policy to consumers so that it does make sense to them. Another bonus of communicating openly with your customer stakeholder group is getting important and timely feedback on planned business moves and thus protecting your business and your image from damage.

In two words: to be successful you need to follow clear business polices, to avoid the thrill of a quick win and to establish open communication with your stakeholders.

DIDI

Influencers and how to become one yourself

Influencers: The Stakeholders who own you and the Stakeholders you can lead

 

When living our lives no matter whether as individuals or as a part of organizations and the business we often make choices or have opinions which do not represent who we truly are. Sometimes we “catch” ourselves making those unnatural steps but most of the time we become unknowingly who our choices make us. The reason is that we are not born free. We are limited in so many ways by laws, culture, education, religion, etc. that we have grown up used to the idea that we must obey the rules.

Rules are indeed very important, if not the very core of society in all its forms. However, growing so obedient we have become slaves to many more rules than it is necessary in reality. Examples can be fashion, music, group rituals, diets, exercise, lifestyle in general, etc.

You will probably ask why we buy certain clothes or go to a certain club? You will not be the only one. Every business no matter how big or small wants to know that.

We do so because we are “told” so. Among us who obey there are also the so called influencers. Those are individuals who are a part of the groups to which we belong and who do not always stay ahead and behave as leaders. Those are simple people who speak the language of the crowd and understand its mechanisms. Of course, influencers are also often also public figures who beforehand have groups of followers.

Influencers are important for business from two points of view – as possible promoters/anti-brand activists and as trend creators. In the first case we talk about marketing efforts or restoring brand communication. Needless to say, this may mean the success or the failure of a brand. In the second case we talk about researching and detecting future trends predicted by behavior of influencers. Using this method can help channel the business efforts in the right direction.

This is also the reason why companies try to attract influencers as their employees or as their loyal consumers. But they fail to understand that being an influencer by “buying” an influencer’s voice is not the best practice. The reason is both that public figures are overused as corporate faces and “private” influencers are often individuals who succeed as such thanks to their strong, honest voice rooted in SOME principles. That is to say that there are no universal influencers. Somebody who is known as knowledgeable in nutrition will without a doubt be as useless to McDonald’s as they would be to Siemens if they start promoting hamburgers after swearing off all fast food throughout all their lives.

There are of course many “sneaky” ways to include an influencer’s voice in the corporate marketing but one should always beware that if an influencer is used in an attempt to manipulate the public and this information is leaked out of the organization great damage might be expected brand-wise.

The truth is that the times of manipulation are over. The only winning strategy for a company is to answer the demand, be honest and responsible. Getting the attention of influencers depends on a company’s ability to predict trends and act on them, cooperate with the public and always be a step ahead of competition.

This is the only way a company can become an influencer itself. However, besides being a market leader one way or another, the company should understand what makes one an influencer – a strong honest voice, rooted in clear principles. Companies need to understand that if they have a stand there will be somebody who will want to listen. And follow.

Global or local marketing strategy?

 

Today globalization means much more than travelling or drinking Cola all around the world. For companies it means a series of urgent questions and strategic decisions which are always due yesterday. A firm has generally few options – to operate locally while competing with local and global competitors, to operate globally while competing with global and local competitors, and to operate globally with localized strategies, thus to compete with global and local competitors as a local entity with the advantage of being a global company.

Each of these strategies makes sense in a certain context. Operating locally is mostly possible when we talk about small companies as with a company’s expansion its market necessarily also expands. However, there are several pluses which small companies should take advantage of. Firstly, it is fairly easy to network, create and manage strong relations with your local community. This way one can ensure loyalty and support for the business. Secondly, engaging in CSR is easy and effective. It is also incredibly visible within the community. Last but not least, one could profit from developing unique partnerships with local suppliers and other companies creating a desirable or protective business climate in the area. It is important to remember that investing in a community gives you some negotiated rights but it also gives you possibilities to control and develop your business environment.

Usually it is advised that strong and established global brands follow a global strategy. That means that a unified marketing strategy with minimal adjustments as language or other small details important at local level is implemented. Examples here are brands as Coca Cola, Harley Davidson, etc. Normally those brands have already been heavily marketed on both established and new markets so their arrival is anticipated and all values attributed to them are incorporated in consumer minds.

As great as that sounds it does have its downsides. Cultural differences, rivalry between countries or religious differences can trigger a market failure for a product marketed in such a way. On top of that one should always be on the watch for anti-globalists as their voice can be pretty loud and their arguments loaded with tragic emotion do affect many consumers and communities. Once again we could take Coca Cola as an example suffering in Asia from its way-too-American branding. The anti-American movement in many of those countries turned a few years ago into a campaign against all American products. Brands like Coca Cola were the main target.

Furthermore, global brands are attributed descriptions as impersonal, money-machines, mass production garbage, killers of culture and local business, invaders, etc.

So one could ask oneself – why market globally?

Just as mentioned above the globalization of a brand makes sense in certain cases. Marketers calculate expected profits and losses in connection to different strategies and if it turns out that losses are not expected to be major or are predicted to present a lesser cost than localizing the global strategy, it is a rational choice to go for global.

However, such a choice is quite more complicated. It also depends on what type of a product or service we offer and what are the standards in the countries where it will be marketed. Some products as toothpaste are generally expected to have similar qualities all around the world and can therefore be marketed globally with almost no necessary modifications. However, marketing something like cigarettes or alcohol which is a subject of a number or local regulations or something like lingerie the commercial of which might simply be banned in some countries as a result of moral censure presents us with a challenge. It requires consideration of a long list of factors highlighted by a thorough research of different prospect markets. That is what is called localized strategy.

In such a case a brand is built around a tight unbendable value core around which the product/service is shaped to meet market needs and requirements. Corporate policy though focuses not only on selling its product but on being accepted by local communities. That is necessary especially in controversial markets but is always advisable.

Allowing your branches to work semi-independently strategy-wise allows for local adjustments and for true involvement with the local community. Such a strategy which incorporates CSR elements benefitting local communities and developing a dialogue with them helps counteract the negative perceptions in connection to being a global brand and creates an environment of trust and mutual support. Needless to say, that will greatly affect sales.

However, there are also some cases where such a global – or multi-branch – company does not have a choice but to allow for independency and local policy for their branches. Such a case I have seen. Factors there were completely different core competences of employees, completely different customer base, different levels of popularity of company name in the two locations, different practices, different expectations and requirements of market based on some cultural differences, and so on. Incredibly enough, the goal was maximal unification – instead of maximum profit or efficiency. The result, not so incredibly, was a struggling local branch.

That is why making a decision concerning your global strategy should be based on thorough research and several major considerations:

1. What are the pluses and minuses of marketing globally?

2. What are the pluses and minuses of marketing locally?

3. What are the expectations of our main consumer base?

4. What are the needs and expectations of our prospect consumers?

5. Is our product/service replicable or it will be modified when entering the new markets?

6. What characterizes the new markets?

7. Who are our competitors? Is it at all worth it to enter certain market?

8. Are there strong local communities? Should we approach them? How?

9. Does our advertising need modification?

10. Are there some religious, cultural or other rules we should respect?

11. How will entering the new market affect our established market and our brand?

Those are just some general concerns which will likely have to be modified in accordance with your specific business, product, and of course market. The main point is that in marketing there are no simple decisions as the right decisions are based on facts, data, and prognoses. 

That is why no matter the size of your company or the budget you have, do yourself a favor and spend as much as needed on strategy. Otherwise you risk spending more on failed strategy.

DIDI

Strategy development, stage 1

CONTENTS

1.      The Perfect Chaos

2.      A strategy – how to manage the chaos

a.       How to prepare for strategy development

b.      Strategy development

 

THE PERFECT CHAOS

Some companies do not understand the importance of strategy it seems. My personal experience with such a company made me aware of some worrying tendencies which one should absolutely avoid if the company is to survive on the market.

First, it seemed that after a relatively recent merge between the company and another company operating in the same general market segment nobody had bothered to evaluate the results in terms of qualifications, working environment, customer relations, company and business structure, etc. Nobody noticed that the company had turned from a small to a middle company. Then nobody understood the necessity of changes in terms of policy, structure, synergy, strategy, consumer segments, competition, market development, and so on.

The problem was that everything was driven on an emerging basis: we stumble upon it, so we should deal with it. However, that resulted in confused customers, dealing for more than a year with a double entity (both companies co-existing under one management); no clear concept about business structure or heading; no vision, mission or image which usually means problems in terms of finding a niche or a stable customer base; no visual image – no business cards, no logo, no presentation materials.

The worst mistakes though came in the form of lack of understanding of strategy. Chaos was created by trying to centralize the control and the administration even though there were two offices operating on different tasks with different customers and with completely different needs. The lack of marketing strategy (and business strategy for that matter) resulted in financial pre-crisis at the smaller office and absolute confusion about how to handle the insufficiency of clients.

The biggest problem though, was that the HQ management did not develop a strategy managing the issues on hand. The understanding and inclusion of all key elements characterizing the business and giving it a fighting chance seemed mission impossible. No wonder there – managing a small office is different than managing two bigger offices. Furthermore, strategy is a specific field and requires competences. You should not believe that knowing your field qualifies you as a strategist.

That is why, before everything falls apart, please understand:

 

A STRATEGY SHOULD BE DEVELOPED BY A STRATEGIST.

In line with that comes the last paradox in the story. Buried in problems, the small office had a great core competence that clients were interested in. However, not understanding what a strategy implies and what the business logic requires, development suggestions given by splendid professionals in their own field included ideas as offering a predefined service to customers (instead of learning to listen and adapt to clients’ needs) and mixing the successful service with different unconnected activities to ensure revenue (thus risking an image that has a chance to be established). Last but not least, one can even argue that the relative success so far has only been a coincidence as the short-termed action strategy – contacting possible customers – cannot ensure the achievement of any of the typical business goals – sustainability, growth, prestige.

A STATEGY – HOW TO MANAGE THE CHAOS

How to prepare for strategy development?

A strategy is crucial, as shown above.

Preparations for strategy development include full analysis of the available resources, of the market, the consumers, and the competition. Resource analysis should include:

1.      Personnel – number, location, qualifications, network, image (in some cases);

2.      Buildings – what does the company own or rent, how much does it cost, what is the location, what is the use of the buildings, what are the eco-characteristics of the buildings, etc.

3.      Management – what is the managerial structure, who are the managers, which are their qualifications, what network do they have and how good they can use it, what is their public image;

4.      Partners – qualifications, resources, CSR, public image, financial state, contracts and agreements, network;

5.      Supply chain – companies, CSR, qualifications, resources, public image, contracts and agreements, network.

6.      Finances – what is the current state of the company, debts, interests, investment, how are the resources managed;

7.      Image – how do our stakeholders see us and why, do we manage to broaden and retain the customer base, what is our strongest feature, what is negative about us, are we known, have we promoted our core competences effectively, have we reached all the stakeholders we needed to reach.

8.      Core competences – licenses, limited knowledge, special type of a service or a product difficult to copy, innovation, etc.

9.      Product – expected frequency of use, demand, price, quality, development, stage in the product life cycle, primary target groups, etc.

After finishing the internal corporate analysis, an external research should be launched to get a detailed picture of the market situation. It should absolutely include:

1.      Competitors – bench marketing, consumer segments, core competences, possibly future strategy, types of products, financial state and public image.

2.      Market – rules and regulations, supply and demand, financial stability, customers’ ability and desire to buy, market tendencies and branch tendencies, etc.

3.      Political and social situation – development and freedom of the market, legal systems and necessary steps to legalize the business, expectations of local communities, political interests and cross-border connections, war, etc.

4.      Consumers – brand dependency, expectations regarding product quality, price, socially responsible practices, levels of consumer awareness in connection to the product’s characteristics and the business practices, local communities, customers of other brands/companies, etc.

5.      Other stakeholders – mapping of all groups or individuals with an interest in the business or interest affected by the business or affecting the business.

Those factors do vary depending on the type of company, on the branch, and the country you operate in. The important part is to analyze comprehensively all factors that have impacted, are impacting or might impact the company. Only then you are ready to talk strategy.

Strategy development

Strategies are developed in close collaboration between the company’s finance manager, business administrator, marketing manager, development/innovation managers, sales managers and possibly stakeholder representatives. It might be that a smaller company will hire outside help if not housing all the needed experts, but it should not happen that any of the core business areas is overlooked.

After establishing the status of the company, vision and mission should be defined. At first they would typically encompass only the financial and growth goals but in the formulation process they will come to encompass everything from resources and company interest to marketing, communication and stakeholder interests. Mission and vision are closely connected to the existing (if any) image of the company and to the desired one. That is to say that setting goals should not only be based on perceived abilities but also on stakeholder expectations.

With the appropriate choice of mission, vision and image goals the first major step in strategy development is over. From here on follows the development of a company-specific operative plan meant to lead the way to realization of the corporate goals.

A very important point here is that mission, vision and image have the purpose to channel the company’s efforts, thus maximize outcomes. However, this also means failure if mission, vision and image are chosen inappropriately. Last but not least, a note which one easily can find in any management textbook – the strategy must be a process, not a campaign with a clearly defined deadline.

DIDI