MarketingRx for October 31/November 7, 2008:
By Dr Ned Roberto with Ardy Roberto
Q: We heard that you recently gave a talk on market segmentation and self-segmentation. We read your book on market segmentation and we’ve been helped by the segmentation approaches you introduced. But that book didn’t at all talk about self-segmentation.
Our news said that you told your audience that self-segmentation is more useful than market segmentation. What’s the difference between market segmentation and self-segmentation? How exactly is self-segmentation of more practical use?
Is this a new book of yours? If it is, where can we buy it? If not, please give us a brief explanation so we can benefit from it just as we gained better understanding of market segmentation from your book.
A: That recent talk isn’t that recent. It’s been some two months ago. Anyway let’s take up your questions. We’ve been asked those questions before and for quite a number of times.
The most instructive way to be clear about the difference between market segmentation and self-segmentation is to think of segmentation as a behavior. Our traditional practice of market segmentation is the marketer’s segmenting behavior. That’s basically your partitioning as a marketer of your total market into segments.
The partitioning may be by socio-economic classification. This is probably the most used segmenting variable. It’s a conventional practice in the shopping mall, restaurant and hospitality services business. The practice typically yields the Class AB (upper class) segment, Class C (middle class) segment, Class D (borderline poor) segment, and Class E (extreme poor) segment. In another occasion as in the apparel and food supplement categories, you may partition by age to come out with the young adult segment, the mature adult segment, and the post-mature adult segment. Others like to partition by gender (the male segment versus the female segment), or even by geographical residency.
The classic pHCare example
Self-segmentation is the consumer’s segmentation behavior. This was what the pHCare market launching team at Unilab found in the feminine wash market in year 2000. The total population of menstruating women at that time self-segmented themselves into the femwash user segment and the femwash non-user segment. According to AC Nielsen, the user segment made up 12% of the total menstruating population while the non-users were a large 82%.
The 82% non-users self-segmented into 3 sub-segments. There were about 50% out of this 82% who for their feminine hygiene needs used 2 substitutes, namely, soap or water. This 50% divided about equally between soap and water. The remaining 32% out of the 82% were the “true” femwash non-users whose reason for non-use was something like this: “Wala naman akong UTI. So di ko kailangan yan.” (I don’t have UTI. So I don’t need that.) This is the most difficult market segment to go after for converting into femwash usage.
The other 2, the soap-using segment and the water-using segment, are not as difficult a segment for conversion. This is because the first of these 2 is already unhappy with soap as a femwash substitute. Soap users say something like this: “It makes me dry and itchy down there.” So demonstrating that a femwash like pHCare won’t dry and won’t make its user feel itchy will lead to conversion in favor of pHCare. On the other hand, the water-using femwash prospects reason out this way: “Okay na ang tubig. Gastos pa yang feminine wash” (Water is okay. It’s extra expense to use feminine wash.) That’s a resolvable issue of affordable value-for-money pricing.
In population size, each of these 2 non-user segments is somewhat larger than the current18% femwash users. The consumers in the soap-using segment count to 20.5% prospective femwash users (= 25% x 82% non-users). That’s the same population size of consumers in the water-using segment.
Converting the soap users into becoming femwash users doubles (about a little bit more) the current femwash user market. Then bringing in the consumers in the water-using segment will more than triple that current femwash user market! As you can see, this is the argument in favor of taking advantage of consumer self-segmentation for its more practical business-growing benefits. As we often tell our seminar participants, the ultimate source for growing your business is a new user market segment. Find one and your double or even triple your business. Because the period of owning a new market segment has been getting shorter and shorter, you can appreciate why searching and locating a new user market segment has become ever more critical.
The AyalaLand example
Here’s another instructive case that reinforces this practical business-growing advantage of self-segmentation but with a different twist. This is the self-segmenting behaviour of home owners of AyalaLand.
Originally, the market segmentation that AyalaLand adopted was by the socio-eco classification of the upper-upper class, i.e., the Class A market. This real property company partitioned the Class A market into the Class AAA (triple A) segment, the Class AA (double A) segment and the Class A (single A) segment.
Over the years, as these market segments got “saturated,” research on home owners in these segments revealed that home owners here were self-segmenting themselves into a first repeat customers for another house and lot, and even as second repeat customers. At the life cycle stage of “Full Nesters 1” where the couple’s youngest kid is less than 6 years old, this Class A customer has been observed to be at its first peak repeat home buying. This is a potentially double-the-business opportunity.
Then at another life cycle stage of “Empty Nesters 1” where you now have older couples, with or without kids at home, but the household head is still working, a Class A customer in this stage has been recorded to be at its second peak repeat home owning. This time and in most cases, this customer buys for gift giving. One of the children is now getting married and what can be a more welcome wedding gift than a house for the newly wed. That’s potentially another double-the-business opportunity.
Where’s the difference in this case? Notice that the new market at each of the 2 peak repeat home buying opportunities comes from the same original customers. The same customer has segmented himself or herself to participate in 2 new market segments. That’s growing business from your already acquired customers. It’s not new customer acquisition as in the femwash case. That’s the most cost-effective sourcing of business growing.
So there you are. There’s hopefully the clear difference between market segmentation and self-segmentation, and the true practical business-growing advantage to navigating through this fast changing waters and times via customers’ self-segmentation.
Keep your questions coming. Send them to ardy.roberto@gmail.com or visit www.marketingrx.org . God bless!
Wednesday, November 19, 2008
“What about de-segmentation? What’s that for?”
MarketingRx –November 14, 2008
By Dr Ned Roberto with Ardy Roberto
Q: We read your recent column on self-segmentation. We never thought about market segmentation that way. That is, as a consumer behavior and not only as a marketer behavior. We were having a lunch discussion on this concept when someone reminded us that in one other previous column you were also talking about another segmentation idea, namely, “desegmentation.” The lady who reminded us said she read it in your column regarding Kartajaya’s Philippine Marketing Association keynote speech where he provoked the audience by saying that marketing is better off today if it gets rid of market segmentation.
Then another person told us that you actually talked about desegmentation in your last Blue Ocean Forum two months ago. He told us that the title of your talk was in fact “Market Segmentation, Self-Segmentation and Desegmentation.” In your column last Friday, you explained the first two but didn’t say anything about the third, that is, desegmentation.
So please tell us about desegmetnation. How useful is this for us marketing practitioners? What is it for? It seems to us that market segmentation and self-segmentation are enough for our segmentation requirements. A mystical sounding third called desegmentation sounds to us like a redundancy and even a contradiction.
A: The concept of “desegmentation” comes from the best seller and voted #1 strategy book of 2005 and 2006, Blue Ocean Strategy. That’s by W. Chan Kim and Renee Mauborgne, 2 professors from INSEAD, Europe’s leading MBA school. In chapter 5 of the book, Kim and Mauborgne explain desegmentation by defining it as follows: “Desegmentation is putting a stop to the pursuit of finer segmentation”… when you’ve identified a “product category non-customer” segment who when combined with the “current product category customer” segment surface a “common product category value” that can be satisfied with a new offering that will reach and “aggregate to a new much larger demand.”
Of course, every time we quote that we hear marketers say and ask: “Wow! That’s a whole lot. What does it mean?” It is a lot to chew and swallow. So read carefully and you’ll be amply insightfully rewarded.
Let’s start from what desegmentation obviously is not. It’s not doing away with segmentation. Unfortunately, that’s the most common first impression that our clients and students get from just reading this compound term. In forming the compound, desegmentation, the use of “de-” creates in the reader’s mind a negation of the term to which it is affixed. That is what happened to you and your business friends in your own impression of the contradictory connotation of the term. So if you want to understand the concept and put it to practical use, this misinterpretation is what you have to first unlearn.
This clears the way for understanding what desegmentation really is. Firstly, it’s about doing several levels of segmenting. It’s first a process of “finer and finer segmentation” of your total market. Secondly, it’s about knowing at what level of refinement to stop the process. And thirdly, it’s about stopping at the level where your best candidate PTM (primary target market) segment represents a source of “a new much larger demand.” It is this unique 3-step disaggregating of the segmenting process that is the outstanding contribution of Kim and Mauborgne to the strategy of market segmentation.
The idea of segmenting beyond the first level and refining down to the “behavioral segments” is not Kim and Mauborgne’s. That’s from the senior MRx-er’s Strategic Market Segmentation book. The logic of the process is simple. The first level segmentation is usually by socio-eco and demographic variables such as, for example, by socio-economic classes like Class AB (rich) segment, Class C (middle class) segment, Class D (borderline poor) segment and Class E (extreme poor) segment. Or by age, or by gender, etc.
To target any one of these first level segments and change its purchase or usage behavior, the marketer must ask: “Are the consumers in, say, the Class C segment the same in, for example, their sensitivity to pricing?” The answer will almost always be “no.” This means that for targeting and consumer behavior change purposes, that Class C segment should further be segmented by price responsiveness. When this is done, it will result, for example, in identifying an economy Class C price segment (whose consumers are immediately price sensitive), a premium Class C price segment (whose consumers are less price sensitive), and even a super-premium Class C price segment (whose consumers are not at all price sensitive).
Let’s have an example of the multi-level process of segmenting so we can continue discussing in the concrete. The senior MRx-er recently had a 3-day marketing consulting engagement with the Singapore government’s Civil Service College. In one half day of the 3 days, the consultant had a workshop session with the Health Promotion Board. One of the programs discussed during this session was the Board’s campaign to accelerate the acceptance and participation by Singapore company employees in the Board’s “Workplace Physical Activity Promotion Campaign.” The idea of developing a 3-level segmentation of the total market of company adult employees was proposed and taken up.
The Board was already segmenting at a first level by age. This identified 3 segments; (1) young adult company employees, (2) mature adult employees, and (3) post-mature adult employees. To get the 3 age segments into identifying each one’s “behavioral segments” called for going beyond this first level segmentation. In order to proceed to a second level segmentation, the Board members in attendance were asked to first answer this question: “Which segment among the 3 has the most need for the workout?” This was for setting priorities among the 3 identified age segments.
The Board chose the young adult segment. This segment became the subject of a second level segmenting. This time it’s segmenting by the working out behavior. This led to 2 identified behavioral segments: (1) the young adult company employees who are now working out, and (2) those young adults who are not working out.
Since the Board wanted to get to a “finer” third level behavioral segmentation, it had to prioritize the 2 just identified second level segments. To do this, the consultant the audience to answer this question: “Between the 2 segments, who is less difficult to reach and persuade about more regular or more intensive work outs?” The Board’s answer was “those now already working out.”
For the third level segmentation, segmenting was by “working out frequency.” The session on this yielded 3 third level behavioral segments: (1) those working out irregularly, (2) those are regular in their work out, and (3) those working out vigorously. To arrive at a prioritizing of these 3, the Board answered this question: “Among the 3 segments, who has the most need for help in their working out frequency?”
After some quick exchange of opinions, the Board members ended by choosing as its PTM (primary target market) segment those who are irregularly working out. Those following a regular work out schedule were designated as the STM (secondary target market) segment. The TTM (third target market) segment was the segment of employees who are vigorous in their work out frequency.
So as this example illustrates, repeating the responsiveness question for some other segmenting variables like product needs or benefits can bring the process to a next or another level segmentation. This particular level will identify what used to be popularly known as “benefits segments.” As our Singapore example shows, it’s possible to go on repeating but every time a marketer is tempted to make the repetition, the critical and practical question must first be answered: “Where do I stop? Is it in the next level of finer segmenting of the market or in this level?”
Here is where the Kim and Mauborgne “desegmentation rule” comes to a most welcome rescue and serves as a most useful decision handle. So in our example, we saw that the Health Promotion Board deciding to stop at the third level segmentation. At that level, it chose for its PTM segment, the segment of those young adult company employees who are already working out but doing so irregularly. Does this choice satisfy the desegmentation rule? That is: Is this the segment representing a source of “a new much larger demand?”
There was not enough time for answering the question with “facts and figures” and not just anecdotally. But one or two Board members mentioned that in terms of segment population size, the chosen PTM segment is known to make up the larger population size. There are also some experts’ opinions to consider. Psychologists and physical therapists working in the campaign hold that it is this young adult segment that promises more than any other segments a “multiplier effect” on other segments including mature adults and post-mature adults. Both of these 2 segments look up to the youth for healthy working out practices and reminisce about their own youth period when they were at the “pink of health.”
There was a final challenging and quite provocative question that was raised. It asked something like the following: “What about those other 2 segments of mature and post mature adults? This is a real problem with segmentation. As a government agency, we must reach all, everyone. That’s the democratic rule. The desegmentation and market segmentation rule violates the mandate of democracy. So how can all segments be reached?”
This basic objection to segmentation has been raised before. Government and non-government organizations who are struggling with the relevance of marketing in their work are particularly concerned about it. There have been different answers from marketing experts. Here’s the answer and explanation in abridged form from the consultant:
“The Rule of Democracy is usually interpreted as the Majority Rule. The logic assumes that if you reach and serve the majority, the minority will soon be reached and served as well. But the history of democracy tells us that this is rarely true. Once the majority is served, the minority is forgotten. And this is why Sir John Mortimer, the noted English barrister and playwright, came out with what we may call the Mortimer Rule of Democracy. It says: “The test of democracy is not that the majority should always get its way but how far minorities are respected.” Majority and minority. These are essentially market segments. And the Mortimer Rule is no different from the Segmentation Rule. So to reach both segments, follow the Mortimer version of the Rule of Democracy, which is the Segmentation Rule.”
Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net or visit www.marketingrx.org . God bless!
By Dr Ned Roberto with Ardy Roberto
Q: We read your recent column on self-segmentation. We never thought about market segmentation that way. That is, as a consumer behavior and not only as a marketer behavior. We were having a lunch discussion on this concept when someone reminded us that in one other previous column you were also talking about another segmentation idea, namely, “desegmentation.” The lady who reminded us said she read it in your column regarding Kartajaya’s Philippine Marketing Association keynote speech where he provoked the audience by saying that marketing is better off today if it gets rid of market segmentation.
Then another person told us that you actually talked about desegmentation in your last Blue Ocean Forum two months ago. He told us that the title of your talk was in fact “Market Segmentation, Self-Segmentation and Desegmentation.” In your column last Friday, you explained the first two but didn’t say anything about the third, that is, desegmentation.
So please tell us about desegmetnation. How useful is this for us marketing practitioners? What is it for? It seems to us that market segmentation and self-segmentation are enough for our segmentation requirements. A mystical sounding third called desegmentation sounds to us like a redundancy and even a contradiction.
A: The concept of “desegmentation” comes from the best seller and voted #1 strategy book of 2005 and 2006, Blue Ocean Strategy. That’s by W. Chan Kim and Renee Mauborgne, 2 professors from INSEAD, Europe’s leading MBA school. In chapter 5 of the book, Kim and Mauborgne explain desegmentation by defining it as follows: “Desegmentation is putting a stop to the pursuit of finer segmentation”… when you’ve identified a “product category non-customer” segment who when combined with the “current product category customer” segment surface a “common product category value” that can be satisfied with a new offering that will reach and “aggregate to a new much larger demand.”
Of course, every time we quote that we hear marketers say and ask: “Wow! That’s a whole lot. What does it mean?” It is a lot to chew and swallow. So read carefully and you’ll be amply insightfully rewarded.
Let’s start from what desegmentation obviously is not. It’s not doing away with segmentation. Unfortunately, that’s the most common first impression that our clients and students get from just reading this compound term. In forming the compound, desegmentation, the use of “de-” creates in the reader’s mind a negation of the term to which it is affixed. That is what happened to you and your business friends in your own impression of the contradictory connotation of the term. So if you want to understand the concept and put it to practical use, this misinterpretation is what you have to first unlearn.
This clears the way for understanding what desegmentation really is. Firstly, it’s about doing several levels of segmenting. It’s first a process of “finer and finer segmentation” of your total market. Secondly, it’s about knowing at what level of refinement to stop the process. And thirdly, it’s about stopping at the level where your best candidate PTM (primary target market) segment represents a source of “a new much larger demand.” It is this unique 3-step disaggregating of the segmenting process that is the outstanding contribution of Kim and Mauborgne to the strategy of market segmentation.
The idea of segmenting beyond the first level and refining down to the “behavioral segments” is not Kim and Mauborgne’s. That’s from the senior MRx-er’s Strategic Market Segmentation book. The logic of the process is simple. The first level segmentation is usually by socio-eco and demographic variables such as, for example, by socio-economic classes like Class AB (rich) segment, Class C (middle class) segment, Class D (borderline poor) segment and Class E (extreme poor) segment. Or by age, or by gender, etc.
To target any one of these first level segments and change its purchase or usage behavior, the marketer must ask: “Are the consumers in, say, the Class C segment the same in, for example, their sensitivity to pricing?” The answer will almost always be “no.” This means that for targeting and consumer behavior change purposes, that Class C segment should further be segmented by price responsiveness. When this is done, it will result, for example, in identifying an economy Class C price segment (whose consumers are immediately price sensitive), a premium Class C price segment (whose consumers are less price sensitive), and even a super-premium Class C price segment (whose consumers are not at all price sensitive).
Let’s have an example of the multi-level process of segmenting so we can continue discussing in the concrete. The senior MRx-er recently had a 3-day marketing consulting engagement with the Singapore government’s Civil Service College. In one half day of the 3 days, the consultant had a workshop session with the Health Promotion Board. One of the programs discussed during this session was the Board’s campaign to accelerate the acceptance and participation by Singapore company employees in the Board’s “Workplace Physical Activity Promotion Campaign.” The idea of developing a 3-level segmentation of the total market of company adult employees was proposed and taken up.
The Board was already segmenting at a first level by age. This identified 3 segments; (1) young adult company employees, (2) mature adult employees, and (3) post-mature adult employees. To get the 3 age segments into identifying each one’s “behavioral segments” called for going beyond this first level segmentation. In order to proceed to a second level segmentation, the Board members in attendance were asked to first answer this question: “Which segment among the 3 has the most need for the workout?” This was for setting priorities among the 3 identified age segments.
The Board chose the young adult segment. This segment became the subject of a second level segmenting. This time it’s segmenting by the working out behavior. This led to 2 identified behavioral segments: (1) the young adult company employees who are now working out, and (2) those young adults who are not working out.
Since the Board wanted to get to a “finer” third level behavioral segmentation, it had to prioritize the 2 just identified second level segments. To do this, the consultant the audience to answer this question: “Between the 2 segments, who is less difficult to reach and persuade about more regular or more intensive work outs?” The Board’s answer was “those now already working out.”
For the third level segmentation, segmenting was by “working out frequency.” The session on this yielded 3 third level behavioral segments: (1) those working out irregularly, (2) those are regular in their work out, and (3) those working out vigorously. To arrive at a prioritizing of these 3, the Board answered this question: “Among the 3 segments, who has the most need for help in their working out frequency?”
After some quick exchange of opinions, the Board members ended by choosing as its PTM (primary target market) segment those who are irregularly working out. Those following a regular work out schedule were designated as the STM (secondary target market) segment. The TTM (third target market) segment was the segment of employees who are vigorous in their work out frequency.
So as this example illustrates, repeating the responsiveness question for some other segmenting variables like product needs or benefits can bring the process to a next or another level segmentation. This particular level will identify what used to be popularly known as “benefits segments.” As our Singapore example shows, it’s possible to go on repeating but every time a marketer is tempted to make the repetition, the critical and practical question must first be answered: “Where do I stop? Is it in the next level of finer segmenting of the market or in this level?”
Here is where the Kim and Mauborgne “desegmentation rule” comes to a most welcome rescue and serves as a most useful decision handle. So in our example, we saw that the Health Promotion Board deciding to stop at the third level segmentation. At that level, it chose for its PTM segment, the segment of those young adult company employees who are already working out but doing so irregularly. Does this choice satisfy the desegmentation rule? That is: Is this the segment representing a source of “a new much larger demand?”
There was not enough time for answering the question with “facts and figures” and not just anecdotally. But one or two Board members mentioned that in terms of segment population size, the chosen PTM segment is known to make up the larger population size. There are also some experts’ opinions to consider. Psychologists and physical therapists working in the campaign hold that it is this young adult segment that promises more than any other segments a “multiplier effect” on other segments including mature adults and post-mature adults. Both of these 2 segments look up to the youth for healthy working out practices and reminisce about their own youth period when they were at the “pink of health.”
There was a final challenging and quite provocative question that was raised. It asked something like the following: “What about those other 2 segments of mature and post mature adults? This is a real problem with segmentation. As a government agency, we must reach all, everyone. That’s the democratic rule. The desegmentation and market segmentation rule violates the mandate of democracy. So how can all segments be reached?”
This basic objection to segmentation has been raised before. Government and non-government organizations who are struggling with the relevance of marketing in their work are particularly concerned about it. There have been different answers from marketing experts. Here’s the answer and explanation in abridged form from the consultant:
“The Rule of Democracy is usually interpreted as the Majority Rule. The logic assumes that if you reach and serve the majority, the minority will soon be reached and served as well. But the history of democracy tells us that this is rarely true. Once the majority is served, the minority is forgotten. And this is why Sir John Mortimer, the noted English barrister and playwright, came out with what we may call the Mortimer Rule of Democracy. It says: “The test of democracy is not that the majority should always get its way but how far minorities are respected.” Majority and minority. These are essentially market segments. And the Mortimer Rule is no different from the Segmentation Rule. So to reach both segments, follow the Mortimer version of the Rule of Democracy, which is the Segmentation Rule.”
Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net or visit www.marketingrx.org . God bless!
Tuesday, October 28, 2008
Anvil to publish Book 2 of The Best of MarketingRx
Anvil and MarketingRx/Inquirer have just agreed to publish the Best of MarketingRx for Executives this December.
The first volume for Entrepreneurs is just about sold out. (I think.)
Hope book two does just as well.
The first volume for Entrepreneurs is just about sold out. (I think.)
Hope book two does just as well.
Friday, September 19, 2008
"Should we advertise low prices? How should we advertise pricing?"
Q: We read your series of Friday columns on pricing and thought that you may also be able to help us. We face a different kind of problem about pricing.
We're a small ad agency. Almost all our clients are SMEs with just one big "anchor" account. Our small clients are competing on their low pricing. They want us to develop an ad campaign focusing on their low price. We tried discouraging them in doing this. We told them the campaign will damage their brand equity if not now then eventually. But they are insisting. They said they've done this in the past and not that bad came out of it. They also told us that they've seen it done successfully by other small advertisers before. They've threatened that if we won't do it or if we won't put our hearts into the job, then they have no choice but to change agency.
Who's right about this issue? What do we do? We don't want to lose clients. At the same time, we want to let them know when they're mistaken, or when we believe they are. Please help.
A: Thank you for bringing this challenging pricing issue to our attention. Here's our diagnosis and prescription.
At the outset, we wish to say that both you and your small clients are right. You are correct under certain competitive conditions and pricing objectives. But your small clients are just as correct under other competitive conditions and pricing objectives.
This means that the two contrasting ad campaigns can co-exist even side by side and nothing that adverse can happen. This is true as long as each campaign is clear about what each price ad campaign wants to happen to its target audience after seeing, hearing and/or reading the price ad.
The Jetstar Case
Consider first low price advertising. Just a few years back, we saw Jetstar Asia, Qantas' budget airline, advertised its extremely cheap Manila-to-Singapore flights. The print ad said:
So what happened to Jetstar Asia?
It actually has prospered and today boasts of "more 90% monthly on-time performance." Its current advertising copy also says this:
Which means what? That means at least two things. First, with its claim of more than 90% on-time performance, it must have passed the stage of penetrating its targeted low-cost flyer segment. Second, it's now preparing to draw passengers from the regular fare paying flyer segment some of whose passengers are looking for a much cheaper airline fare but with "the same safety and comfort standards" of the regular fare airline.
How come this low-cost pricing ad succeeded and did not harm the brand image of Jetstar's mother airline, Qantas?
The answer is in Jetstar's very transparent intent to go after the budget passenger segment. It's all about segmentation. And all it did was to gave this segment's flyers exactly what they were after: half the fare of the legacy airline but with same on-time performance.
Will it succeed in drawing passengers from the regular fare paying segments? If it is able to deliver on the next promise of half the fare but with the same safety and comfort standards of the regular fare airline, it will succeed. Of course it will get all of the regular fare paying passengers. But it will attract those who are price sensitive.
Because of this budget airlines' success, at least two things will happen in the competitive market. First is to make passengers more aware of options for flying cheap but just as on-time, as safely, and as comfortably as in the legacy airlines. Second is to raise the paying passengers' price sensitivity when choosing which airline to take every time they fly.
Have other low-price ads experienced the same or similar success?
RETAIL Store examples
You'll find a whole lot of examples in retail stores. We were once in Robinson's Galleria when we saw a rubber shoe boutique's display window showing its shoe merchandise beside a colorful poster that said: "For the same thing (obviously referring to just a check mark but without mentioning the brand), why pay double?" And that's not for announcing a sale.
Towards the end of the third quarter and into the fourth, leading car brands announce the coming of next year's models. Right beside this announcement is just as large a poster asking both pedestrians and motorists to come in and see the remaining inventory of this year's models available at substantially discounted "LOW, LOW PRICES!" The brand images of Toyota, Honda, Mitsubishi, Nissan, Isuzu, Kia, and others are no worse off for all these in the next year and many years after.
So, what does the foregoing say about when you should support the low-price advertising intention of your small clients? That's when the following three considerations obtain. Firstly, your small client must have already succeeded in participating in the low-price segment. Secondly, its competitive market must be getting more and more undifferentiated, and it's unlikely that the trend will be reversed soon. And thirdly, it makes strategic marketing sense to raise your consumers' price sensitivity in the market.
What about your case? The case of advertising high prices, premium pricing? What does this ad look like? How come it rarely draws the kind of criticism that low price ad gets?
Even a few examples will quickly answer these questions. An old Bayer ad on its aspirin said: "All aspirin is not alike." The Q-Tips ad for its cotton swab said something similar: "A swab by any other name is not the same." In the copy of its ad for Black Label Scotch, Johnnie Walker made the same point but using an engaging prose:
Even an extreme case seem to also work. If you consider the wine list of a restaurant as an in-store ad material, just look at this wine menu at a Greenbelt 2 restaurant:
When we inquired if any of these items ever get any buyer, the proud head waiter quipped in a faked British accent: "Of course sir. In fact, quite often." Yes, of course. This is Greenbelt 2, the hangout of Makati's "rich and very rich" consumer segment. We forgot our basic marketing and did not think segments.
It should now be easy to understand why there's much less negatives with premium price advertising. There's something to be proud of and the intent is precisely that. It's to enhance the product image of the premium priced brand.
When premium price advertising succeeds, its effects contrast with those we saw in low-price advertising. Because of the enhanced brand image, the premium price advertiser gains so many points versus its competitors. The larger this gain becomes, the more price insensitive the consumers in the category becomes. There's reduced price sensitivity for the advertiser brand.
So there's your case for premium price advertising. It will work when the competitive market is highly differentiated, and when you wish to further reduce price sensitivity to your advertised brand.
Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net.
We're a small ad agency. Almost all our clients are SMEs with just one big "anchor" account. Our small clients are competing on their low pricing. They want us to develop an ad campaign focusing on their low price. We tried discouraging them in doing this. We told them the campaign will damage their brand equity if not now then eventually. But they are insisting. They said they've done this in the past and not that bad came out of it. They also told us that they've seen it done successfully by other small advertisers before. They've threatened that if we won't do it or if we won't put our hearts into the job, then they have no choice but to change agency.
Who's right about this issue? What do we do? We don't want to lose clients. At the same time, we want to let them know when they're mistaken, or when we believe they are. Please help.
A: Thank you for bringing this challenging pricing issue to our attention. Here's our diagnosis and prescription.
At the outset, we wish to say that both you and your small clients are right. You are correct under certain competitive conditions and pricing objectives. But your small clients are just as correct under other competitive conditions and pricing objectives.
This means that the two contrasting ad campaigns can co-exist even side by side and nothing that adverse can happen. This is true as long as each campaign is clear about what each price ad campaign wants to happen to its target audience after seeing, hearing and/or reading the price ad.
The Jetstar Case
Consider first low price advertising. Just a few years back, we saw Jetstar Asia, Qantas' budget airline, advertised its extremely cheap Manila-to-Singapore flights. The print ad said:
"Fly Jetstar Asia to Singapore for only US$79. Daily flights from Ninoy Aquino International Airport. Book online www.JetstarAsia.com."
So what happened to Jetstar Asia?
It actually has prospered and today boasts of "more 90% monthly on-time performance." Its current advertising copy also says this:
"If you think all low-cost airlines are the same, think again. At Jetstar Asia, we believe in bringing you the same safety and comfort standard as legacy airline, but without you having to pay legacy airline fares."
Which means what? That means at least two things. First, with its claim of more than 90% on-time performance, it must have passed the stage of penetrating its targeted low-cost flyer segment. Second, it's now preparing to draw passengers from the regular fare paying flyer segment some of whose passengers are looking for a much cheaper airline fare but with "the same safety and comfort standards" of the regular fare airline.
How come this low-cost pricing ad succeeded and did not harm the brand image of Jetstar's mother airline, Qantas?
The answer is in Jetstar's very transparent intent to go after the budget passenger segment. It's all about segmentation. And all it did was to gave this segment's flyers exactly what they were after: half the fare of the legacy airline but with same on-time performance.
Will it succeed in drawing passengers from the regular fare paying segments? If it is able to deliver on the next promise of half the fare but with the same safety and comfort standards of the regular fare airline, it will succeed. Of course it will get all of the regular fare paying passengers. But it will attract those who are price sensitive.
Because of this budget airlines' success, at least two things will happen in the competitive market. First is to make passengers more aware of options for flying cheap but just as on-time, as safely, and as comfortably as in the legacy airlines. Second is to raise the paying passengers' price sensitivity when choosing which airline to take every time they fly.
Have other low-price ads experienced the same or similar success?
RETAIL Store examples
You'll find a whole lot of examples in retail stores. We were once in Robinson's Galleria when we saw a rubber shoe boutique's display window showing its shoe merchandise beside a colorful poster that said: "For the same thing (obviously referring to just a check mark but without mentioning the brand), why pay double?" And that's not for announcing a sale.
Towards the end of the third quarter and into the fourth, leading car brands announce the coming of next year's models. Right beside this announcement is just as large a poster asking both pedestrians and motorists to come in and see the remaining inventory of this year's models available at substantially discounted "LOW, LOW PRICES!" The brand images of Toyota, Honda, Mitsubishi, Nissan, Isuzu, Kia, and others are no worse off for all these in the next year and many years after.
So, what does the foregoing say about when you should support the low-price advertising intention of your small clients? That's when the following three considerations obtain. Firstly, your small client must have already succeeded in participating in the low-price segment. Secondly, its competitive market must be getting more and more undifferentiated, and it's unlikely that the trend will be reversed soon. And thirdly, it makes strategic marketing sense to raise your consumers' price sensitivity in the market.
What about your case? The case of advertising high prices, premium pricing? What does this ad look like? How come it rarely draws the kind of criticism that low price ad gets?
Even a few examples will quickly answer these questions. An old Bayer ad on its aspirin said: "All aspirin is not alike." The Q-Tips ad for its cotton swab said something similar: "A swab by any other name is not the same." In the copy of its ad for Black Label Scotch, Johnnie Walker made the same point but using an engaging prose:
"When you are dealing with something quite extraordinary, price somehow seems irrelevant or even irreverent. Indeed, for those who appreciate fine Scotch, Johnnie Walker Black is priceless."
Even an extreme case seem to also work. If you consider the wine list of a restaurant as an in-store ad material, just look at this wine menu at a Greenbelt 2 restaurant:
2002 Crane Lake Merlot : P1,200
2000 Chateau Mouton Rothschild: P84,380 (marketed as the 'wine of the century')
1997 Harlan Estate Cabernet: P138,094
1996 Screaming Eagle Cabernet: P195,705
2000 Chateau Mouton Rothschild: P84,380 (marketed as the 'wine of the century')
1997 Harlan Estate Cabernet: P138,094
1996 Screaming Eagle Cabernet: P195,705
When we inquired if any of these items ever get any buyer, the proud head waiter quipped in a faked British accent: "Of course sir. In fact, quite often." Yes, of course. This is Greenbelt 2, the hangout of Makati's "rich and very rich" consumer segment. We forgot our basic marketing and did not think segments.
It should now be easy to understand why there's much less negatives with premium price advertising. There's something to be proud of and the intent is precisely that. It's to enhance the product image of the premium priced brand.
When premium price advertising succeeds, its effects contrast with those we saw in low-price advertising. Because of the enhanced brand image, the premium price advertiser gains so many points versus its competitors. The larger this gain becomes, the more price insensitive the consumers in the category becomes. There's reduced price sensitivity for the advertiser brand.
So there's your case for premium price advertising. It will work when the competitive market is highly differentiated, and when you wish to further reduce price sensitivity to your advertised brand.
Keep your questions coming. Send them to us at MarketingRx@pldtDSL.net.
Thursday, August 28, 2008
Watsons vs Mercury Drug - Round 1
Last weekend, I was buying some meds for my wife. While I was at it, I decided to buy this sinus/anti-allergy med that I like because, well, it works on me and it's natural. I bought this drug at Watson's the last few times around. I started buying stuff at Watson's because the lines are much shorter compared to Mercury.
When I showed the service staff the last piece of that med that I wanted, they didn't know what it was. I asked them if they had it on stock, and they said 'no.' I asked them, if they knew the name, and they said 'no.'
"So that's why it's not on stock, because you don't know what it is?"
Didn't mean to be bitchy, just wanted to know the difference.
I talked to the supervisor and she tried to decipher the name from the single piece of med that was left with me. (You cant' read the name from the piece that was left over.)
About 3 or 4 of them tried to figure out. You could just see two or three letters and of course the actual light green tablet.
When they started berating me for not saving the receipt and the name, that's when I decided to skip out of there and in my head, say to myself, "let's see if the folks at Mercury can do their jobs better..."
"Miss, do you know what this is?"
1 - 2 - 3
"Sinupret.
...How many do you want?"
True enough, within three seconds the Mercury lady was able to identify what I wanted.
Round 1 goes to Mercury via a knockout!
When I showed the service staff the last piece of that med that I wanted, they didn't know what it was. I asked them if they had it on stock, and they said 'no.' I asked them, if they knew the name, and they said 'no.'
"So that's why it's not on stock, because you don't know what it is?"
Didn't mean to be bitchy, just wanted to know the difference.
I talked to the supervisor and she tried to decipher the name from the single piece of med that was left with me. (You cant' read the name from the piece that was left over.)
About 3 or 4 of them tried to figure out. You could just see two or three letters and of course the actual light green tablet.
When they started berating me for not saving the receipt and the name, that's when I decided to skip out of there and in my head, say to myself, "let's see if the folks at Mercury can do their jobs better..."
"Miss, do you know what this is?"
1 - 2 - 3
"Sinupret.
...How many do you want?"
True enough, within three seconds the Mercury lady was able to identify what I wanted.
Round 1 goes to Mercury via a knockout!
Wednesday, August 27, 2008
The price is right?
This paper (Philippine Daily Inquirer) really has the best readers in the world! Thanks for all your comments and questions. We can't reply immediately to all of your questions and requests individually, especially those of you who sent them by text, but we will try to cover some of them here in this column. So, before we get into the featured topic, let's fire off some quick answers to your questions to our column last week (painless price increases) and publish some of your comments. We included questions that we got from the original column in 2006 and in last week's redux.
Is pricing a social responsibility of marketers?
Q – "Is it right to increase price during crisis? My customers are price sensitive." – May B.
A – Well, if you're willing to absorb the increase of your cost in doing business and remain profitable, then by all means, don't increase your prices, especially during "crisis." (But remember, in the Philippines, we are always in "crisis." ) This social responsibility issue perennially faces the likes of Petron, Caltex and Shell. And of course, Meralco. Marketers who supply parents with school supplies and books, I think, have some social responsibility as well when it comes to pricing. You did not mention what product you sell, but our consumer coping studies show that people who are faced with price increases either (a) bear the increase and continue buying the brand you market, (b) replace or substitute the brand, or (c) stop buying the brand or product all together.
The informal survey we did last week reflects the consumer coping mechanisms, mentioned above, to crisis or price increases. One reader (in 2006) said, "I have stopped buying Inquirer one day a week because of the recent increase to P18." The same reader also mentioned that if this paper increased its price again by another two pesos, he would stop buying altogether and substitute the Inquirer by going online and reading the web version, Inquirer.net.
Another reader responding to this year's poll in last week's column, said, "Hi, I'm Sidd, a 4th yr cvl engg stud in UPDil. I jst read ur artcle 2day in PDI. Dis is a rply 2 ur pol question. Hnestly, I stoppd buying newspapers (only on b-days, xmas & d Oscars). I borrow from d engg library on my vacant hurs. Price increases r really a pin (mahal n ulit ang pandesal!). I guess pipol don't get askd @ wat price dey cud 2ler8 bcoz service provders know dat fter ranting bout hi prices pipol wud stl be wiling 2 pay 4 watever price der is. Sigh"
In Cebu, our last coping study (2006) shows that when it comes to deodorant, over 30% of the DE consumers resort to letter "c"—they stop buying to cope with the hard times. So would it be "right" to increase the prices of your deodorant in times of crisis? This country would have to face another kind of smelly crisis if that were to happen. Tell us about it.
Would it be right for Coca-cola to increase their prices during crisis when the poor use their product as a substitute "ulam" or viand? (Our coping study shows that the poor mix Coke, or toyo, or pork lard on their rice—that is a meal for them. On good days, they will have Lucky Me! cooked and mixed with cheap vegetables and an egg—to feed a family of five.) If Coca-cola did increase their prices, would it be right for the five-star hotels to increase the selling price of Coke in their lobbies, which already starts at P100 to P150? Tell us about it.
Marketers can charge premium prices as part of their positioning and market segmentation strategy and not feel bad about it because part of their profits goes to a "cause." (Check out the Body Shop's positioning. It basically says to us, "We sell relatively expensive, all natural products sourced from third world countries at a good profit but at least we give back some of that profit to the third world country where it was made.") Call it Robin Hood marketing. Profiting from the rich, to give back and help the poor.
One big price increase works for this reader
"Your column, 'How to do painless price increases' is right dead-on. It works to affect one big price increase rather than a series of small ones. Amazingly, our patrons tend to stay loyal with our products that way. Keep up the valuable information. More power!"
– Mr. Fred
We don't know what product Mr Fred markets, but since he expressed "amazement" at their customer's loyalty despite their one big price increase, most likely Mr Fred stumbled into this particular "law" of pricing. Again, to find out at what price your customers will continue to buy your products, ask them at what price they will stop buying your products. (For those who just said, "huh?" after reading this, please read last week's column by going to www.marketingrx.org)
Competing with low priced competition when you're a premium brand
"We are maintaining a high price for our brand because of quality and brand equity. We are also trying to maintain sales growth. Our problem is that cheaper competitors are coming in and our trade customers are asking us to reduce price. Should we reduce price? How should we solve this problem?" - Mr. Worried Marketer
Don't worry. (As Bro. Eddie would say, "sabi ng bible it's a sin to worry!") Anyway, start by checking which of the low priced competitors are gaining sales. If these are competitors who have minimum acceptable quality in their products, then you can conclude even without research that they are drawing consumers whose priority product values are "low price first." (As long as there's minimum quality in the cheap products that are attracting them.)
Then check how much lost sales these low priced competitors with a minimum amount of product quality are causing your brand. These lost sales will level off after some time. What you're left with are the consumers whose priority product values are the opposite of those who went over to the low priced competitor products. Their priority places high quality as the first consideration in the brand they buy and price is just secondary. These consumers define your premium market segment where your brand leads and has its equity. A premium market segment is nice to own. This is because it derives its market size not from its population size but from its higher usage frequency, its larger amount bought or used, and the higher price that it pays. These multipliers can make a low population size-premium segment count as a multiple of a large population size-low priced segment. (See the senior MRx's book, Strategic Market Segmentation.)
"I would buy PDI up to P26. Im loyal to PDI and esp ur mktg rx column. Keep it up guys! - mark
Reducing price may back-fire on you
Now, if you reduce price, analyze how this will affect your premium consumers. It's highly likely that you will alienate most if not all of them. That means further lost sales. Why can this happen? It's because they won't believe that you can maintain high quality with such a price reduction to match the pricing of the cheap competitor products.
Your lower price won't also bring back your lapsed consumers to your brand. Most will be resentful and say: "So, after all you can significantly lower price. Why did you do that only now? You took advantage of us all this time and for so long. You #*@!%+?&"
By trying to get your premium brand to the price consumers via a lower price while holding on to your premium consumers based on your brand equity, you'll find that you're likely to lose both. If you want a piece of the action in the price consumer segment, come in with your own low-priced brand or variant with as good or slightly better minimum quality versus the available low priced competitors. This is what Tang did when it launched Kool Aid. (See MarketingRx August 1, 2003 – "Who's afraid of brand cannibals?" If you don't have access to that, don't worry. Soon, the Inquirer Books will co-publish the Best of MarketingRx for Brand Executives. What's available now at bookstores is the Best of MarketingRx for Entrepreneurs.) To hold on to your premium consumer segment, you're better off reinforcing your premium brand's perceived strength: that it is first and foremost high quality available at a value-for-money price and therefore specifically tailored to their priority values for a premium brand.
This is essentially a market segmentation strategy. If you're faced with an evolving market that has partitioned into two segments, one a premium segment and a low priced segment, you can't satisfy both by your premium brand alone. If you lower your premium brand's price, you damage your brand equity in the eyes of your premium consumers and you lose your hold on them. If you enter the low-priced segment with your lower priced premium brand, you won't be credible to consumers in this segment because they'll resent your lowering your price only now when you could have done it way before.
The second part of this market segmentation strategy says that to succeed in two market segments with two differing priority product values, you should have either two brands or two distinct variants of one brand each specifically suited to satisfy the priority values of each of the two segments. This means that you should keep your premium brand in the premium segment. If you want to meet low priced competitors, then do so by your own low priced brand or variant.
The wisdom of introducing into the low priced segment your own low priced brand or variant is in being able to catch the price consumers who are leaving your premium brand. Many if not most of them will stay with your company via your low priced brand or variant. This way then, you won't be giving them away to the low priced competitors because you did not have a low priced brand or variant of your own to attract them and satisfy their own priority values.
What the Inquirer did was to participate in the premium brand (with this paper and its sister publications from Hinge like Golf Digest) and low price segment (Inquirer Libre! and its tabloid, Bandera) expectedly, those who answered that they would keep on buying this paper until P26 were those who texted from Globe cel numbers. Those who answered that they would stop buying at P22 came from Sun and Smart numbers.)
So it is a strategic market segmentation error to lower the price of your premium brand in order to answer the threat of a growing number of low priced competitors. The next time your trade customers asked you to lower the price of your premium brand, tell them that you're coming out with your own low price brand or variant. You'll see the excitement in their eyes when you announce this. The trade people are the first to know that this is the strategically correct market segmentation move to take.
The last word on pricing goes to this loyal Inquirer reader who texted her response to our informal survey on this paper's price increase:
"Gud am! I'll never stop buying PDI. E2 na dyaryo ko since dalaga pa. Now I'm a homemaker w/ 3 kids and my hubby wants to switch which I hate. I forego merienda just to have my PDI. Thanks." – Mrs. Manalo
For comments or questions, email us at marketingrx@gmail.com while our pldtdsl email is on the blink! You can also text us at 0920-9519618.
Is pricing a social responsibility of marketers?
Q – "Is it right to increase price during crisis? My customers are price sensitive." – May B.
A – Well, if you're willing to absorb the increase of your cost in doing business and remain profitable, then by all means, don't increase your prices, especially during "crisis." (But remember, in the Philippines, we are always in "crisis." ) This social responsibility issue perennially faces the likes of Petron, Caltex and Shell. And of course, Meralco. Marketers who supply parents with school supplies and books, I think, have some social responsibility as well when it comes to pricing. You did not mention what product you sell, but our consumer coping studies show that people who are faced with price increases either (a) bear the increase and continue buying the brand you market, (b) replace or substitute the brand, or (c) stop buying the brand or product all together.
The informal survey we did last week reflects the consumer coping mechanisms, mentioned above, to crisis or price increases. One reader (in 2006) said, "I have stopped buying Inquirer one day a week because of the recent increase to P18." The same reader also mentioned that if this paper increased its price again by another two pesos, he would stop buying altogether and substitute the Inquirer by going online and reading the web version, Inquirer.net.
Another reader responding to this year's poll in last week's column, said, "Hi, I'm Sidd, a 4th yr cvl engg stud in UPDil. I jst read ur artcle 2day in PDI. Dis is a rply 2 ur pol question. Hnestly, I stoppd buying newspapers (only on b-days, xmas & d Oscars). I borrow from d engg library on my vacant hurs. Price increases r really a pin (mahal n ulit ang pandesal!). I guess pipol don't get askd @ wat price dey cud 2ler8 bcoz service provders know dat fter ranting bout hi prices pipol wud stl be wiling 2 pay 4 watever price der is. Sigh"
In Cebu, our last coping study (2006) shows that when it comes to deodorant, over 30% of the DE consumers resort to letter "c"—they stop buying to cope with the hard times. So would it be "right" to increase the prices of your deodorant in times of crisis? This country would have to face another kind of smelly crisis if that were to happen. Tell us about it.
Would it be right for Coca-cola to increase their prices during crisis when the poor use their product as a substitute "ulam" or viand? (Our coping study shows that the poor mix Coke, or toyo, or pork lard on their rice—that is a meal for them. On good days, they will have Lucky Me! cooked and mixed with cheap vegetables and an egg—to feed a family of five.) If Coca-cola did increase their prices, would it be right for the five-star hotels to increase the selling price of Coke in their lobbies, which already starts at P100 to P150? Tell us about it.
Marketers can charge premium prices as part of their positioning and market segmentation strategy and not feel bad about it because part of their profits goes to a "cause." (Check out the Body Shop's positioning. It basically says to us, "We sell relatively expensive, all natural products sourced from third world countries at a good profit but at least we give back some of that profit to the third world country where it was made.") Call it Robin Hood marketing. Profiting from the rich, to give back and help the poor.
One big price increase works for this reader
"Your column, 'How to do painless price increases' is right dead-on. It works to affect one big price increase rather than a series of small ones. Amazingly, our patrons tend to stay loyal with our products that way. Keep up the valuable information. More power!"
– Mr. Fred
We don't know what product Mr Fred markets, but since he expressed "amazement" at their customer's loyalty despite their one big price increase, most likely Mr Fred stumbled into this particular "law" of pricing. Again, to find out at what price your customers will continue to buy your products, ask them at what price they will stop buying your products. (For those who just said, "huh?" after reading this, please read last week's column by going to www.marketingrx.org)
Competing with low priced competition when you're a premium brand
"We are maintaining a high price for our brand because of quality and brand equity. We are also trying to maintain sales growth. Our problem is that cheaper competitors are coming in and our trade customers are asking us to reduce price. Should we reduce price? How should we solve this problem?" - Mr. Worried Marketer
Don't worry. (As Bro. Eddie would say, "sabi ng bible it's a sin to worry!") Anyway, start by checking which of the low priced competitors are gaining sales. If these are competitors who have minimum acceptable quality in their products, then you can conclude even without research that they are drawing consumers whose priority product values are "low price first." (As long as there's minimum quality in the cheap products that are attracting them.)
Then check how much lost sales these low priced competitors with a minimum amount of product quality are causing your brand. These lost sales will level off after some time. What you're left with are the consumers whose priority product values are the opposite of those who went over to the low priced competitor products. Their priority places high quality as the first consideration in the brand they buy and price is just secondary. These consumers define your premium market segment where your brand leads and has its equity. A premium market segment is nice to own. This is because it derives its market size not from its population size but from its higher usage frequency, its larger amount bought or used, and the higher price that it pays. These multipliers can make a low population size-premium segment count as a multiple of a large population size-low priced segment. (See the senior MRx's book, Strategic Market Segmentation.)
"I would buy PDI up to P26. Im loyal to PDI and esp ur mktg rx column. Keep it up guys! - mark
Reducing price may back-fire on you
Now, if you reduce price, analyze how this will affect your premium consumers. It's highly likely that you will alienate most if not all of them. That means further lost sales. Why can this happen? It's because they won't believe that you can maintain high quality with such a price reduction to match the pricing of the cheap competitor products.
Your lower price won't also bring back your lapsed consumers to your brand. Most will be resentful and say: "So, after all you can significantly lower price. Why did you do that only now? You took advantage of us all this time and for so long. You #*@!%+?&"
By trying to get your premium brand to the price consumers via a lower price while holding on to your premium consumers based on your brand equity, you'll find that you're likely to lose both. If you want a piece of the action in the price consumer segment, come in with your own low-priced brand or variant with as good or slightly better minimum quality versus the available low priced competitors. This is what Tang did when it launched Kool Aid. (See MarketingRx August 1, 2003 – "Who's afraid of brand cannibals?" If you don't have access to that, don't worry. Soon, the Inquirer Books will co-publish the Best of MarketingRx for Brand Executives. What's available now at bookstores is the Best of MarketingRx for Entrepreneurs.) To hold on to your premium consumer segment, you're better off reinforcing your premium brand's perceived strength: that it is first and foremost high quality available at a value-for-money price and therefore specifically tailored to their priority values for a premium brand.
This is essentially a market segmentation strategy. If you're faced with an evolving market that has partitioned into two segments, one a premium segment and a low priced segment, you can't satisfy both by your premium brand alone. If you lower your premium brand's price, you damage your brand equity in the eyes of your premium consumers and you lose your hold on them. If you enter the low-priced segment with your lower priced premium brand, you won't be credible to consumers in this segment because they'll resent your lowering your price only now when you could have done it way before.
The second part of this market segmentation strategy says that to succeed in two market segments with two differing priority product values, you should have either two brands or two distinct variants of one brand each specifically suited to satisfy the priority values of each of the two segments. This means that you should keep your premium brand in the premium segment. If you want to meet low priced competitors, then do so by your own low priced brand or variant.
The wisdom of introducing into the low priced segment your own low priced brand or variant is in being able to catch the price consumers who are leaving your premium brand. Many if not most of them will stay with your company via your low priced brand or variant. This way then, you won't be giving them away to the low priced competitors because you did not have a low priced brand or variant of your own to attract them and satisfy their own priority values.
What the Inquirer did was to participate in the premium brand (with this paper and its sister publications from Hinge like Golf Digest) and low price segment (Inquirer Libre! and its tabloid, Bandera) expectedly, those who answered that they would keep on buying this paper until P26 were those who texted from Globe cel numbers. Those who answered that they would stop buying at P22 came from Sun and Smart numbers.)
So it is a strategic market segmentation error to lower the price of your premium brand in order to answer the threat of a growing number of low priced competitors. The next time your trade customers asked you to lower the price of your premium brand, tell them that you're coming out with your own low price brand or variant. You'll see the excitement in their eyes when you announce this. The trade people are the first to know that this is the strategically correct market segmentation move to take.
The last word on pricing goes to this loyal Inquirer reader who texted her response to our informal survey on this paper's price increase:
"Gud am! I'll never stop buying PDI. E2 na dyaryo ko since dalaga pa. Now I'm a homemaker w/ 3 kids and my hubby wants to switch which I hate. I forego merienda just to have my PDI. Thanks." – Mrs. Manalo
For comments or questions, email us at marketingrx@gmail.com while our pldtdsl email is on the blink! You can also text us at 0920-9519618.
Tuesday, August 26, 2008
How to do painless price increases
This week, we republish this column and a series on pricing which first came out last February 2004 when the peso was reeling from a series of devaluations (and was forecasted to reach P65=US$1 at one point) and even this paper had to increase its cover price by P3.00. So here it is again and we hope this helps you in the midst of pressure to increase your prices.
An eternal question that will haunt Filipino marketers faced with consumers dealing with rising prices of rice, gas and everything else in between (except for the domestic airlines who are still dishing out almost everyday low airfares) is this: how do I increase the selling price of my products without losing my customers?
Many times, marketers or the finance guys in the office will determine the price increase by simply adding on the increase in cost. Many will hold off and absorb the cost of a more expensive dollar (assuming a significant portion of your product or service—if for example you have to remit royalties on services in dollars—is imported) or raw materials (prices of steel doubling the past year will surely pressure those in the construction business; price of wheat doubling as well has put pressure on the likes of those manufacturing instant noodles) by trying to be more cost efficient.
We say there's a better way.
Asking the right question.
The best way to go about a price increase is to ask the consumer--your customer--the question: at what price are you NOT willing to buy this product anymore? Basically, when you do your market research, you never ask them what price they are willing to pay. You'll get baloney answers. They'll say, "Siguro iyong mura." People don't know what they want. But they do know what they DON'T WANT. Case in point. Just ask your spouse or date, "Honey where do you want to eat?" He or she will say, "I don't know. Ikaw?" As soon as you make some suggestions like, "Okay, how about Kermit's" You'll get a reaction like, "Ay! I don't like. We just had adobong frog's legs the other night." Then you suggest a few more restaurants and the two of you will basically arrive at a decision by process of elimination.
It's the same thing with pricing your products. Let your customer's tell you at what price they are n-o-t willing to pay anymore for your product or service. There is an organized, scientific way of doing this. Most professional research agencies now know how to do this. (The senior MRx pioneered and revolutionized this kind of price research and taught most of the research agencies how to use it.) If you're an entrepreneur, you can still do this kind of research, do-it-yourself-style.
All you have to do is show your product or a description of your product and produce a chart displaying the current price of your product/s or service/s. Then show a series of prices that are higher than the current price. Then ask the question. "Okay, here's the price of the product that you are currently buying. At what price will you begin to substitute, replace or stop buying this product?" Then you show the prices in increasing scale. Take note of their answers. If you have a small trading business with 20 or 30 customers, then you can do a census and ask all of your customers. If you have 20,000 customers, then ask your friendly neighborhood research agency to survey a correct sampling of your customer base.
Surprise!
At the end of the day, you'll have data that might surprise you. You may even find out that a good majority of your customers are so loyal to your product that they would tolerate a price increase much higher than what you were thinking of. A couple of clients of ours actually discovered this. For example. At what price would you, dear reader, stop buying this newspaper? At P20? How about P22? How about P25? How about P27? (Hey, it would be cool if you could let us know. Text us your answer at 0920-9519618. Text "A" for P20, "B" for P22, "C" for P25, "D" for P26, "E" for P27.)
Of course, greed and taking advantage of your customers' loyalty is another matter. But wouldn't you rather have that data, that intimate knowledge of what the consumer is thinking, and base your price increase decision on that? (Versus making a decision based on a bunch of marketing and finance executives hunches and assumptions.)
"Killing me softly…"
One of the most popular sessions in the Senior MRx's seminars is the session on price sensitivity research. (You can also read about this in the book, User-Friendly Marketing Research 3rd edition available at National Bookstore or the AIM Library.) What you'll also learn there is that consumers would rather be slapped with one big price increase instead of a series of small increases. (Of course, if you are Meralco or Caltex, that's a different story.) When you increase prices little by little on a regular basis, consumers feel the pain. Some describe it as if they're being slowly stabbed with a blunt screw driver. Some consumers compare it to going to a dentist to have an abscessed tooth pulled out. "Don't do it slowly! Do what you've got to do! Pull it out and let's get the pain over with!"
What they'd rather have you do is to give them one big punch/punishment, one time, with the next one to come, well, two years from now when Noli de Castro or Bong Revilla makes a run for the presidency. Only God, or Lucio Tan, knows what the price of oil and the exchange rate will be by that time. So keep a copy of this column, it will come in handy again in 2010.
For comments or questions, email us at marketingrx@pldtdsl.net. The Best of MarketingRx for Entrepreneurs is now available at National and Powerbooks. You can also purchase it here.
An eternal question that will haunt Filipino marketers faced with consumers dealing with rising prices of rice, gas and everything else in between (except for the domestic airlines who are still dishing out almost everyday low airfares) is this: how do I increase the selling price of my products without losing my customers?
Many times, marketers or the finance guys in the office will determine the price increase by simply adding on the increase in cost. Many will hold off and absorb the cost of a more expensive dollar (assuming a significant portion of your product or service—if for example you have to remit royalties on services in dollars—is imported) or raw materials (prices of steel doubling the past year will surely pressure those in the construction business; price of wheat doubling as well has put pressure on the likes of those manufacturing instant noodles) by trying to be more cost efficient.
We say there's a better way.
Asking the right question.
The best way to go about a price increase is to ask the consumer--your customer--the question: at what price are you NOT willing to buy this product anymore? Basically, when you do your market research, you never ask them what price they are willing to pay. You'll get baloney answers. They'll say, "Siguro iyong mura." People don't know what they want. But they do know what they DON'T WANT. Case in point. Just ask your spouse or date, "Honey where do you want to eat?" He or she will say, "I don't know. Ikaw?" As soon as you make some suggestions like, "Okay, how about Kermit's" You'll get a reaction like, "Ay! I don't like. We just had adobong frog's legs the other night." Then you suggest a few more restaurants and the two of you will basically arrive at a decision by process of elimination.
It's the same thing with pricing your products. Let your customer's tell you at what price they are n-o-t willing to pay anymore for your product or service. There is an organized, scientific way of doing this. Most professional research agencies now know how to do this. (The senior MRx pioneered and revolutionized this kind of price research and taught most of the research agencies how to use it.) If you're an entrepreneur, you can still do this kind of research, do-it-yourself-style.
All you have to do is show your product or a description of your product and produce a chart displaying the current price of your product/s or service/s. Then show a series of prices that are higher than the current price. Then ask the question. "Okay, here's the price of the product that you are currently buying. At what price will you begin to substitute, replace or stop buying this product?" Then you show the prices in increasing scale. Take note of their answers. If you have a small trading business with 20 or 30 customers, then you can do a census and ask all of your customers. If you have 20,000 customers, then ask your friendly neighborhood research agency to survey a correct sampling of your customer base.
Surprise!
At the end of the day, you'll have data that might surprise you. You may even find out that a good majority of your customers are so loyal to your product that they would tolerate a price increase much higher than what you were thinking of. A couple of clients of ours actually discovered this. For example. At what price would you, dear reader, stop buying this newspaper? At P20? How about P22? How about P25? How about P27? (Hey, it would be cool if you could let us know. Text us your answer at 0920-9519618. Text "A" for P20, "B" for P22, "C" for P25, "D" for P26, "E" for P27.)
Of course, greed and taking advantage of your customers' loyalty is another matter. But wouldn't you rather have that data, that intimate knowledge of what the consumer is thinking, and base your price increase decision on that? (Versus making a decision based on a bunch of marketing and finance executives hunches and assumptions.)
"Killing me softly…"
One of the most popular sessions in the Senior MRx's seminars is the session on price sensitivity research. (You can also read about this in the book, User-Friendly Marketing Research 3rd edition available at National Bookstore or the AIM Library.) What you'll also learn there is that consumers would rather be slapped with one big price increase instead of a series of small increases. (Of course, if you are Meralco or Caltex, that's a different story.) When you increase prices little by little on a regular basis, consumers feel the pain. Some describe it as if they're being slowly stabbed with a blunt screw driver. Some consumers compare it to going to a dentist to have an abscessed tooth pulled out. "Don't do it slowly! Do what you've got to do! Pull it out and let's get the pain over with!"
What they'd rather have you do is to give them one big punch/punishment, one time, with the next one to come, well, two years from now when Noli de Castro or Bong Revilla makes a run for the presidency. Only God, or Lucio Tan, knows what the price of oil and the exchange rate will be by that time. So keep a copy of this column, it will come in handy again in 2010.
For comments or questions, email us at marketingrx@pldtdsl.net. The Best of MarketingRx for Entrepreneurs is now available at National and Powerbooks. You can also purchase it here.
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