price-walls

Increasing Prices & Avoiding Price Walls

Atenga’s CEO, Per Sjofers interviewed by Cheri Hill, CEO of Sage International Inc.

Most companies have great fear of raising their prices. How do you really help people understand the importance of a pricing project within their organization and of course your 6 steps and the methodical way you go through it? And how often should companies be raising their prices?

The general rule is that you should make small price changes frequently. The reason is that, let's say you increase your prices a couple percent every 6 months. That isn’t so much, but after a couple of years that makes a big difference. This also prevents being in the situation where suddenly your back is against the wall and you realize you can’t go on anymore because your costs have increased. Then you have to implement a substantial price increase. Which is possible to do if you present it in the right way, but it is much easier to nudge up your prices every 6 months or maybe even every 2-3 months - it really depends on the circumstance.

I have a great example, UPS, every year raises their prices across the board 2-3%, consistently and you attribute it to price of gas and all that. Well for the last year or so, gas prices were low - and when the price increase showed up in January, it really made me question, do they have a pricing strategy? Or is it just across the board, because we know they aren't paying more in gas. So it forced me to go out and look at other options...

First of all, the airlines are in the same boat. The whole airline industry is an interesting case study because they almost disappeared as an industry 5-6 years ago. What they started to do was simply cut supplies which demanded higher prices. Which is why the airline industry now has load factors which are close to 90%. This is great for them and not so great for Travelers like us, but it also made the airline industry more profitable in the last 3 years or so. It is also interesting what you are saying about UPS because their has to be some intelligence behind it. If you use gas prices as a reason for increasing prices, and then gas prices decrease, you have people like yourself questioning the same thing. They go out and start looking for alternatives. Now, there's something else that is very important as you go up in pricing, thanks to the psychology of pricing, their is something that we call price walls.

Price walls are price points where a small price change can make a very large difference in your sales volume. If you priced yourself to low, which many do, you come to one these price walls and inch up your pricing and see your sales level explode. This is because suddenly you are getting closer to the that point where your price is aligned with your customers willingness to pay.

On the other hand if you price yourself on the high side, you come to a price wall where if you raise your price,  you see your sales level drop substantially. We have seen occasions where companies have gone from pricing their product from $499 to $500 and have lost 2/3 ‘s of their customers. So knowing where these walls are incredibly important and you can't guess them. They have to be measured and that is what we do in pricing research, we measure where these walls are.

 

 
 
commodities-pricing-strategy

Atenga’s CEO, Per Sjofers interviewed by Cheri Hill, CEO of Sage International Inc.

Today we are going to tackle the topic of pricing strategy. Which is emerging as the most important resource for companies to increase their competitive advantage. The vast majority of companies have spent years achieving gains through cost cutting, outsourcing, process re-engineering, and the adoption of innovative technologies. However, the incremental benefits from these important activities are diminishing and companies need to look at other areas to improve their business results.

Joining me today is, Per Sjofers, a thought leader in the world of pricing strategy, a prolific writer, international speakers, and Founder & CEO of Atenga Inc. - an organization of business people who bring experience from more than 70 industries & 500 projects to your company. They use in depth practical pricing research, deep analysis, and competitive intelligence to help their clients price their goods and services correctly, and make better business decisions.

First topic - I want you to define and share of course, your insight into what really is a pricing strategy.

“Well anybody who sells anything has a pricing strategy. Sometimes it is a very simple pricing strategy - more often it is a very simple pricing strategy where companies take their cost and slap on a fixed margin. They may peg their price to a competitor's OR we have the ever so popular method to figure out a price that feels good to whoever is setting the price.”

But that is really what you don’t want - When you are using these simple pricing strategies you leave masses of money on the table. And not only do you see your revenues become sub par, but so do your profits & sales levels.

The right pricing strategy is one that is aligned with your customers willingness to pay, and when you set your pricing strategy to that willingness to pay, it is not unusual to see a doubling of profitability at the same time as sales growth also doubling. And for those who have equity in these companies; this is really important because it can more than double their share holder value.”

You’ve helped some pretty large fortune 500 companies really look at that, “What is a customer willing to pay”?  And I think as a business owner, and certainly I hear it a lot, that people are afraid to ask for more money. And we have been conditioned that way, to set a price and the big box stores do the discounting. How do I really figure out what my research needs to cover? What is my customer willing to pay? And to actually feel good about it?

Well, pricing is certainly the most powerful marketing message of the benefit that you give to your customers, so it really depends on what your business is.

If you are selling a commodity product, than your wiggle room is fairly limited. And the challenge is to find ways to de-commoditize the product. That can sometimes be quite interesting when adding content. For example, Ink Jet printers are a commodity product. They are very low cost - and what HP has recently done is they started to bundle in a subscription to New York Times with their printers. So now they have added content to add value and increase willingness to buy for their printers. They found a way to de-commoditize themselves. And once you’ve done that, you gain some level of pricing power.

 
 
 
 
 
pricing-errors-top-four
Pricing errors occur all the time in business, but those who fail to catch them early suffer. Even the biggest companies in world make mistakes...  


Here are Four of the Biggest U.S. Pricing Errors


#4 Pricing Error: Sears.com (Apple Ipad 2)

 
 

Sears listed A $744.98 Apples Ipad 2 for $69.00
Cost of the mistake: $0.00

Luckily, Sears caught this one early, immediately notifying the public of its error. Aside from a few hundred disappointed customers & having to let go of an employee, Sears walked away un-scathed. 

 

#3 Pricing Error: Bestbuy (52" HDTV)

 
bestbuy-pricing-mistake
 

Best buy listed A $1,699.99 52" inch HDTV for $9.99
Cost of the mistake: $0.00

Other than some embarrassment, BestBuy also suffered no loss on this one. Catching it early - thanks to some loyal customers calling in to report the mistake.  

 

#3 Pricing Error: Zappos.com (Code Glitch)

 
zappos-pricing-error
 

Zappos.com Code Glitch : Everything costs $49.95
Cost of the mistake: $1.6 Million

What better way to earn your customers trust & loyalty than to own up to your mistake. Zappos did just that - bitting the bullet on this one and allowing customers to keep all items purchased at the error price. The cost of this mistake was around $1.6 million dollars.

 

#1 Pricing Error: Apple (Mac Mini)

 
apple-pricing-error
 

Apple offers a %66 discount on the Mac Mini
Cost of the mistake: $200 Million

Last but not least, Apple takes the gold for the costliest mistake made in the last decade. Yes, that was a $200 million dollar mistake! Ouch.

 

And there you have it, four of the biggest pricing errors made by the some of the largest U.S. companies. Although Sears and Bestbuy walked away without a loss, Apple & Zappos were the unfortunate ones. The lesson to learn here is that even the biggest companies are not immune to errors, but those who take responsibility for their mistakes are rewarded with customer loyalty.      

  

 
Posted
AuthorAtenga Inc.
 
steps-pricing-champions-take

What defines a company as a pricing champion?

A company that is really good at pricing!? Yes, but a champion of pricing can be defined further.

Although Pricing is a key focal point that they invest much of their resources into, the true pricing gurus understand the complexity of pricing. They understand that setting the price right is equally as important as the components that follow it. Which brings us to our first Step.

Step #1 - Market Research

Knowledge is power. All Pricing Champions have a methodical system in place when it comes to market research. They know exactly what questions must be answered and by whom, in order to consider the insight complete, true, & qualified for basing business decisions off of. They understand that this insight must include internal perceptions (within the company) as well as the external perceptions from customers, non-customers, and complete strangers. Simply stated, these companies understand this insight must cover everything, as it will serve as the first step to in their climb.

Step #2 - Setting Goals

Those that excel in growing their business have clearly defined goals - both short-term & long-term, putting an emphasis on “clearly”. Once the company has gathered the insight and analyzed it thoroughly, they are able to set prices confidently as well as set very specific high probability goals. But these goals span beyond pricing, pouring over into the other business departments. Departments such as marketing, which leads us up to step number three.

Step #3 Marketing Strategy

Every pricing champion has a sound marketing strategy to accompany any changes made to pricing and/or variations to their products or services. This in-depth customer insight allows the company to structure their marketing messages & their positioning according to their different market segments (defined through insight) or conclude whether a segment is worth targeting at all - Resulting in funds being spent strategically in profitable areas.

Step #4 Guiding Customers

Guiding customers takes place in the sales department. In alignment with the marketing strategy and customer insight, sales staff are trained to speak the language of the customer. Since the company has a good understanding of their customers perceptions and value drivers, they are trained to guide their customers to see the value in the product, while excluding price. Questions around price are carefully deflected until the customer sees the value. They do this, knowing the stronger the value they can create without pricing, the stronger connection the customer has to the product. This increase their demand and results in lower customer requests for discounts.  

Tying these four steps together you can clearly see how one step seamlessly flows into the next. This is not saying excluding any of these steps will result in failure, yet it is simply shedding light on the importance of the first step, market research, and the role it plays in making confident, smart, and strategic business decisions that follow in your market. They are the same steps the pricing champions of the world have climbed to reach the top and become market leaders in their industries.

 
 
fighting-commoditization-pricing-power

The problem so companies are facing is loss of pricing power and commoditization. We will explain why commoditization happens, what it will do for pricing power, and how you, as business leaders should look at commoditization and customer loyalty.

Commoditization, loss of pricing power, and lack of customer loyalty are problems every business face. But - there are always way for companies to stand out, to gain back pricing power, and at the same time keep customers happier and more loyal. We will talk about the results you can expect from the process.

Let's start by analyzing the problem.

In every industry there is pressure to commoditize and when industries commoditize they stagnate. It occurs in every industry in every part of the globe. Profits decline until someone comes along inventive enough or smart enough to disrupt the industry - sweeping aside the players that allow themselves to become commoditized. This move towards commoditization develops at different speeds in different industries. The high tech industry has the fastest commoditization pace, but other industries commoditize very slowly.

Let's take for example, many years ago the cellphone industry was highly profitable. Companies like Nokia became global market leaders and made huge profits. Eventually though, profits declined, and Nokia issued profit warnings and went through a deep restructuring - ultimately deciding to sell off its head-set division. Then the iPhone, the de-'commoditizer' , established new levels of performance, new offers of convenience, new values, and new price points at which they were able to earn superior profits.

It is always our role as managers to fight commoditization, find ways where we can stand out, where we can gain pricing power and customer loyalty. The example I gave you was a high tech industry, because the products are familiar, but since commoditization happens in every industry so does de-commoditization. So there is hope, we all have the chance to rise to the occasion and fight back.

So, how can companies rise from the sea of commodity and differentiate themselves to gain pricing power? The answer is innovation, in fact the general rule is that when you price for profits, you get the resources to innovate and you innovate for growth. Innovation doesn't have to be technical - It can be how you market yourself, how you sell, and what you sell.

For example the cost of jet engines used to be huge impediment to sales, until vendors came up with charging customers for usage for every hour the engine was used, as opposed to a huge capital cost.

Lets summarize the key points - we said commoditization forces are inevitable, but innovation will allow you to fight back. The marketplace is never homogeneous and you can leverage your insight of differentiators to gain pricing power in the marketplace. The way to de-commoditize is to know what segments are willing to pay more, how much more, and most importantly, for what.

 

 
 
pricing-silver-bullet

Companies approach Atenga all the time asking us, "What is the best price for our product"?

What is the best price for my SAS product?
What is the best price for my automotive accessory?
What is the best price for my kitchen appliance?

And the reality is, there is no “best” price for any product or service unless you correlate “what you offer” with “customers willingness to pay”. Unfortunately many companies base pricing out outdated, dispelled "how to price x,y,z" methods.

Yes, there are rules of thumb. For instance, if you are in the SAS market, you should follow the guidelines of the - good, better, best strategy, but there are not any rules against fixed prices, or that you should charge $10 per month if it is this type of product, $100 per user, $50,000 a month if it is for a company...

What it boils down to is research and gaining a deep understanding of what customers are willing to pay for your service, your unique product, your differentiators, and your marketplace.

The lesson to learn here, is that there is no silver bullet to pricing. The answer is never, “what you see is what you get” - it is more often than not found in what you don’t see. This has to come from pricing research & competitive research. This insight then gives you the opportunity to understand how you can better differentiate yourself in the market place, ultimately giving you pricing power.

The leverage you gain from this insight helps you price right. It also helps you decide where to spend money on marketing, how to structure your messaging, and in many cases provides you with a product roadmap. Without this insight you are simply playing a guessing game. You run the risk of leaving money on the table and exhausting funds in an effort to find what works and what does not. 

That is how you confidently choose the right price. 

 
Posted
AuthorPer Sjofors
CategoriesBusiness Tips
 

A medical service company wanted to expand into one of the most competitive territories in their industry. Having studied the area on their own accord, they still were left questioning whether or not to pull the trigger and move forward with their plans. These competitors were triple the size of them and offered lower prices, making it impossible for them to match. Knowing how beneficial this move would be for them, they came to us for help.

Research is the most important task a company needs to perform when they make a change - that includes raising or lowering prices, changing locations, changing names, company policies, etc. etc. By performing research you mitigate errors and ensure a smooth transition - this furthermore allows you to map out and answer the “what ifs” that will surely arise when the plan doesn’t go accordingly.

With that being said, the first step we took with this company was customer research. Through this, we found that buyers were concerned about new medicaid penalties. These penalties were centered around hospital re-admits, and if penalized, could take away an entire year's profit for them. The buyers were concerned their current providers did not fully understand their needs and all of the challenges faced with serving at-home care in rural areas. It was also found that these buyers were aware of their company and the fact that they specialized in servicing rural areas.  

After analyzing all of the data, we found that the buyers wanted more than just a “We got you covered” approach, which is what their current providers were telling them. They wanted a detailed and structured layout of how exactly this would be accomplished.

Our solution was formed around three elements

  • Seminars
  • Resources & Processes
  • Three Pricing Tiers (options)

The Seminars were held in 9 different counties over the course of a month - this allowed companies to engage & ask questions. Then we developed sales resources and processes detailing risks that would accompany an infective rollout - creating an urgency in focusing on quality & dependability over low cost & volume. Lastly, we created a three tier pricing system based on per-patient-per-month to align with medicare guidelines.

The results spoke volumes - 6 month after those three actions were completed, 50% of the hospitals within the target area signed up. The larger competitors, who offered lower prices, struggled to deliver the services, leading to even more sign ups - it was also reported that many of these companies were losing money.

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premium-pricing-products-atenga

Customer insight reveals how to demand premium prices.    

As a consumer living in the United states, we are constantly surrounded by four letters. S-a-l-e. Are eyes light up seeing it, are ears perk up hearing it, and are adrenaline races once we’re near it. But as a business owner hearing your competitor is offering a sale, feelings can be mixed. An owner of a Fabrication company that offers premium products, was convinced his customers were leaving him for a foreign company that always offered lower prices & sales.

And he was right.  

Specializing in milling aluminum components to extremely fine tolerances, this US based fabricator was suffering a loss in business. A few Chinese importers entered into the market and were slowly pecking away at his customer base - which lead him to Atenga. Immediately, we knew lowering their prices to compete with these foreign competitors was not a viable option. Their products value was built around quality, whereas his competitors was built around “the lowest price”.

When they came to us, the first thing that we did was perform an in depth study of their market. We identified two segments that needed client capabilities and quick-response services. These segments were also willing to pay 25% higher prices. Furthermore, we identified a set of additional services they could offer customers, with little to no extra effort on their end - ultimately improving customer's value perceptions in the target marketplace.

The Action

Immediately they tied up loose end on the production side. Re-Engineering processes for quicker turnaround time & more accurate production forecasts. They then shifted sales efforts towards these two market segments - while also developing an introductory offer for new customers to experience faster turnaround times and an accurate & responsive “customer catered” atmosphere.  

Result

The result was night and day - Capture rates rose from %2 to 60%. New sales grew by 34% in the next six months, and 20% of the existing customers signed up for their “ALL” program.

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app-store-pricing-tips

We all know the App space is very interesting. In 2015 Apple released data showing that App Store developers have earned a cumulative $25 billion from the sales of apps and games. Fun Fact: Apple makes $0.30 cents on every dollar for applications sold, which generates them 3 to 4 billion in revenue per year - android is similar.

The problem with apps, as a developer, is that most of them are free and those that are not, are priced very low - $0.99 cents to $1.99 on average. This creates expectations in customer minds. They expect that if you provide them an app, it better be “cheap” - regardless of it’s capabilities.

Here is a case study 

A company came to us asking, “What should the price of our app be”? This company had developed a training course that helps high school students increase their chances of getting into their top school of choice, which they then turned into an App.

After the study was conducted, we not only found what the “best price” of the App should be, but what the optimum price should be if it were offered and implemented through a website.

First off, this was a unique and very important product. Parents saw a huge value in this application because many of them are deeply invested in the process of getting their kids into “the best” college - so the market for their product was enormous.

Through our study, we found that the optimum price that customers were willing to pay for this app was just under $50 dollars, $49.95 to be exact. Which of course would be substantially greater than what most customers “expect” to pay on the app store. However, we found that if their same product was offered through a website, consumers had a 20% overall higher willingness to buy AND for x3 as much as the suggested app price of $49.95. They now could sell it for $149.95 - that is a $100 dollar difference!

Once the company saw this data, they completely changed their product roadmap for development. They Instead focused on the much more lucrative website medium for distribution. This resulted in them making a lot more money and allowed them to grow at a much faster pace - had they chosen to showcase their product in the app store .

The lesson here is to know that your first choice is not necessarily your best choice. Once you have insight & hard data on what people are willing to pay for your product through "medium A" vs. "medium B", you can make the smart & confident choice for pricing - and in turn grow your business faster.  

 

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Posted
AuthorPer Sjofors
 
amazon-new-price-change

Amazon now lets you subscribe solely to their Prime Video service for $8.99/month. Sounds like a deal, right? Here is a picture of their current signup page. 

 
amazon-prime-video-pricing-2016
 

Doing the math, for $108/year you can subscribe to Prime Video OR you can pay $9 dollars less ($99/year) for an Amazon Prime membership, which includes 2 day shipping, prime video, ebooks, music sharing, deals and more. The only benefit you receive from choosing to sign up for prime video is that you can cancel at anytime.

Amazon has been heavily investing into their Prime Video service, as they are increasing the amount of original content they produce. Surprisingly, many subscribers are unaware that prime video is even included in their subscription. Now, by unbundling their main package, it strongly encourages customers to pay for the full prime service. 

Why would they offer this if it is really not a deal? - there are few reasons. For one, publicity - anytime a major company changes prices, the media will cover it. This creates that awareness with all their current customers and now future customers who are looking to sign up. Also, by offering Prime Video as a service on its own, customers who pay $9.99 and up for other streaming services (such as Netflix & Hulu) can easily see the tremendous value & benefit that is offered in their Amazon Prime Membership. Does Netflix or Hulu offer Free 2 Day Shipping?

This is a "prime" example of how important pricing correctly is and the value that you can create when you have variations of your product(s) or service(s).

 

 

 

 
Posted
AuthorPer Sjofors
CategoriesBusiness Tips
 
are-my-customers-lying-to-me

Most companies base their product and service changes off opinions & reviews captured from those who think their products is “good” and those who “hate it” - for lack better phrases.

Logically this makes sense.

However, the problem with this is that customers who actually love everything about your product, only make up a small fraction of your entire customer base. These are the people that are quick to leave you useful in-depth honest reviews.

Then you have the people who say it’s awful, these are the negative reviews, every company has at least a few. Typically the percentage is low or you would not have much of a business. Many of these reviews are used to change the company structure ie. pricing, product development, marketing, customer service and so on.

It goes without saying, the problem with that is the amount of input is too small. On top of this, unfortunately, many customers know bad reviews=freebies & discounts. They jump on any mistake you make, and leverage their ‘bad’ review for their benefit. Which makes this category even harder to base changes off of, but misguided companies still do.

The satisfied & dissatisfied customers, can be broken down into four groups.

The Four Groups Of Customers

Great: The customers who leave in-depth reviews of why they love it.
Good: The short answers - “Great product” “love it” “very helpful”.
Okay: Tend to not say anything at all -Or- give short answers.
Awful: The unfortunate negative reviews.

Satisfied customers, tell the truth, but not the whole truth. When it is broken down into these four categories. The percentages drastically change. The 95% of reviews with “useful insight” then becomes 15%, leaving you with 80% of bland insight that has no use in distinguishing your customers values, perceptions, and drivers.

These percentages don’t represent every business, but most companies have similar stats to this when they crunch the numbers. This shows you that companies can NOT rely on and base changes on data they collect themselves from customers. When asked "do you like my product"? Customers often lie for a variety of reasons - but one of the biggest reasons is because it is generally conceived as rude to tell someone, "Hey, I don't like your product". So instead they say very little or nothing at all. 

There are many other factors that come into play for why customers "lie". For instance, if you have a sales team and your customer loved the person they worked with. They both were car fanatics and shared stories & laughter with one another after the sales call. Chances are, when handed a review they will base answers more favorably, even to questions unrelated to "customer service". That 3 Star rating they were gonna give for "product quality", then becomes a 4 Star.

How do you fix it?

The answer is found through anonymous interviews & surveys. By conducting research anonymously, you gain this “truthful” insight into these customers values, perceptions, and drivers...That is of course if you ask the “right” questions.

Customers rarely lie on surveys that are anonymous. It evokes a sense of "safety" which encourages them to open up and answer honestly. ie. The catholic church performs "confessions" where member confess all of the things they did wrong - the priest sits next to the member, but in between them is wall. That same wall is needed between you and your customer if you want honest answers.  

Now, you can certainly conduct this yourself, but almost always the ones who participate, are again, the 15% who rave about your product & service and the 5% who had a bad experience. Most companies do this, not realizing it represents roughly 20% of their customers.

By administering anonymous surveys, with carefully crafted questions that don’t infer or identify who you are, you are able to find out “who” the 80% of your customers really are (that you haven’t heard from or not enough from), what they like, what drives them to buy your product or that of your competitors, and what they are willing to pay.

Constructing an “anonymous” research project can be a difficult task for any business, but this is a science Atenga specializes in. Specifically we focus on finding the “best price” for your product or service, but it goes much beyond that. The information gathered gives companies insight into their “entire” market, not just their current customers. We then break it into customer segments based on all of these values, so that you can price right for each segment and or change what market segment you focus on. This all can be used to make important changes in pricing, product development, sales, marketing & messaging, and positioning.

 
 
 
netflix-pr-fiasco-pricing-atenga

22 million customers will now pay more for the same service

Currently, Netflix is targeting their most loyal customers in their newest effort to raise revenue - and chances are, YOU are one of them. Starting next month, over the course of this next year, Netflix will increase prices for 17+ million grandfathered plans ($7.99 -$8.99) to $9.99 a month. A $1 to $2 increase that will affect about 20% of their total subscriber base; which currently stands at 80 million subscribers.

Why does Per Sjofers, CEO of Atenga think this will cause such a stir - Plain & simple, customers do not like surprises. Netflix has a reputation for not effectively communicating with it’s subscribers from the get-go. Just last week they also implemented a “geo-blocking” software  -  which restricted VPN users outside of the US from using and watching many of the most poplar shows, again, without notifying customers.

A recent online poll showed that 41% of customers said they would cancel their subscription if Netflix raises prices - this equates to a  2% to 3% loss in overall subscribers or (1 to 3 million customers). Clearly, this will not take Netflix down, but their next move will certainly be interesting.

What Netflix is doing wrong this time

  • Notifying customers just weeks before the price increase kicks in. Instead, many have heard the news from third-party sources and some customers won't find out until their next credit card statement.
  • Customers will be paying more for the same service without any additional benefits - AND they lose their earned & deserved  "grandfathered in status.

Now, How do you increase prices the ‘right’ way?

  1. You tell your customers far in advance. Customers don’t like surprises . Never be afraid of communicating changes that affects them. Yes, Initially they might be angry, but they still want to know. They pay to know- And they deserve to know.
  2. Give them a reason. Why are you increasing your prices? Is it because your manufacturing costs went up, you changed vendors, you hired more technicians in the field, etc.. Then tell them the new value that was created by raising the prices. Is it to improve the quality of the product, growing customer support so that they have less of wait time, faster shipping, etc. Unless you are pulling a Bernie (not Sanders), then there is almost always some benefit that customers receive through price increases. If packaged right AND delivered on time, (not) for example Netflix, then after the initial cloud of price shock settles your customers will appreciate your honesty & openess.

Wrapping everything up, Netflix’s incremental price increases over the last few years is a prime example of why the initial price that you set for your products is critical. By knowing what your market is willing to pay, you avoid leaving money on the table; Money that can be used for growth and improving your products & services..

Here is a case study Atenga performed on the top video streaming services. Netflix was included in this study and we found that customers back then were willing to pay much more than $8.99 a month, in fact, $6 dollars more per month! This could have potentially increased their revenue 40% to 50%. If Netflix took Per’s pricing advice long ago, chances are they would not be in this situation...,again.


netflix-atenga-pricing-tips
 
 
Posted
AuthorPer Sjofors
CategoriesPricing Tips
 

I founded Atenga because I wanted to make pricing practical. What I learned in business school and reading about pricing was way to academic. Not something I, as an executive in the several companies I have managed, could use.

The process we developed works every time. Among the ~500 projects we have done, we have 499 references. We work primary with small to mid-sized companies, about 60% of our clients sell B2B, and about half sell services.

The process is all about replacing gut feel and guesses with hard data

Here are the steps below: 

  1.  Research: In order to price right, companies have to do research into their marketplace. The research need to anonymous and it has to reach statistical significance.
  2.  Willingness to pay: Using advanced research technologies, it is possible to accurately measure what a marketplace is willing to pay for just your product or services and specifically for the unique benefits your product or service provides to the customers.
  3. Drivers: A driver is something about your product or service that influences your customers' willingness to buy and to pay. Decision drivers increase willingness to buy, value drivers increase willingness to pay. Drivers are not limited to product/service features/functions/benefits, but they are also how you position the company, how you go to market, your marketing messages and how customer perceive your company and product/service compared to competition and alternatives.
  4. Segmentation: Deep and detailed segmentation based on socioeconomics, value drivers, decision drivers and willingness to pay generates a treasure trove of hard data about your market.

Tying it all together: From this process you get:

  • What market segment has the highest willingness to buy and to pay. What product features/benefits and marketing messages resonates specifically well with this segment and where, and how do they want to learn about your product or service.
  • What specific price level will generate the highest market share, what specific price level will generate the highest revenue and profits.
  • What specific pricing structure generates the highest market share and revenue.
  •  What marketing messages and positioning statement is most effective in driving conversion.
  • How much will your pricing of one product/services cannibalize sales of competing product/services. How can you set your pricing to minimize cannibalization of your other products/service.

In short, you get a recipe for how to price "right", how to market "right" and how to sell "right".

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“Millennials” also known as “Generation Y” are an 80 million-person cohort born approximately between 1980 and 2000. With about 50% now of “working age” this group of young adults represents a sea change of attitudes and values for the workplace. Many studies have been done on Millennials for the purposes of marketing. However there is a lack of non-anecdotal data on the differences between this younger generation and the “Baby Boomer” generation (born approximately from 1946-1964) in terms of workplace habits.

This paper summarizes the first in a series of short surveys that the authors have aimed at generational differences in the workplace. The intended purpose of this information is to help employers and employees create better workplace protocols, better communication practices, clearer expectations and to uncover areas that may be causing friction in the workplace. It’s clear that in the 21st century businesses that are made up of creative, motivated employees and partners will be those that succeed. 

 

Survey Method

This survey was done in April of 2015 by Atenga, a professional survey and data interpretation company specializing in pricing surveys and guided by Josh Tickell, an award winning film director and generational specialist. An online survey panel statistically representing the US population was assembled. Respondents were compensated with cash for their efforts to take the survey. The statistical accuracy of this project is better than a 95% confidence factor +/- 2.5%.

 

Findings

Respondents were asked a series of questions relating to life choices, needs at work, work motivation and self-expression. The data is summarized below. 

 

Life Choices

 

When asked about the importance of “life choices” including being close to family, selecting a “good” neighborhood, being close to work, etc. Millennials and Baby Boomers responses were extremely similar. These significant cornerstones of lifestyle varied so little between respondents from the two generations that answers were... 

almost indistinguishable. Interestingly, respondents from both generations almost equally valued a fast Internet connection and living close to friends. It seems that the modern world has fostered an equal desire to be online and to be physically close to those we care about.

 

At Work

Both Millennials and Baby Boomers felt that “making work fun” is important. (However the definition of “fun” may vary between the two groups – a subject for a future survey).

There was a significant divide however on the issue of “mentoring.” Millennial respondents, 67% more than Baby Boomer respondents, reported that “having a great mentor” is important. Formal mentorship programs have sprung up in a number of fortune 500 companies as part of their on-boarding process, so this should not be a surprise. However, the views are divergent. A workplace in which the generation with experience and knowledge fails to provide mentoring may be a rocky place to work for young hires. This can cause turnover.

 

Money

The survey gave Baby Boomers and Millennials a chance to weigh the importance of “doing good” (purpose or mission-driven work) versus making more money. The results indicate a substantial divide in attitudes between the two generations. Respondents from the Baby Boomer generation said they were 67% more interested in making more money than doing good.
 

On the other hand, Millennial respondents weighed making more money on par with “doing good.” Whether this is attributable to life status (lack of financial obligations such as children and longterm home loans) or a true value difference is yet to be determined. For now, it is safe to say that Millennials entering the workforce are significantly more purpose-driven than members of their parents’ generation.

 

Self Expression 

Perhaps the greatest area of divergence in generation responses was around the concept of self-expression. Respondents were asked “In your opinion, what’s the single best way to express your personality?” Across the board, Millennial respondents weighted everything from tattoos to their cars and even where they live are significantly more important than their Baby Boomer counterparts as forms of self-expression. 
 

What's-the-single-best-way-to-express-your-personality

In nine separate categories of items that could express individuality, Millennials showed they value self-expression up to eight times more than Baby Boomers.

 

Recommendations

 If you own, manage or operate a company and you work with young employees, the data suggests that mentoring, creating a clear purpose for your operation and allowing a broader ranger of self-expression in the workplace are important for long-term retention. 

Employee turnover costs in the United States alone run in the hundreds of millions. Companies that have adopted honorable social purposes range from Costco to Ford. The trend is clear and those who wish to reduce employee turnover and thereby costs, would be wise to find a way to adopt purpose-driven practices. Many successful companies that cater to Millennial workers have relaxed policies on tattoos, piercings and other means of outward self expression. These companies range from Facebook to Chipotle. Companies managed by those in the Baby Boomer or Generation X generations may find it difficult to imagine a workplace in which tight jeans and nose rings are the norm, but the data (and popular social imagery) of the Millennial generation suggests that it is only a matter of time before the dress code of the modern American workplace is altered. Adopting policies that allow Millennials to express themselves could foster acceptance and engender loyalty. 
 

 
 
drug-pricing-ethics-atenga

I strongly believe that there has to be ethics in pricing. Vendors that provide lifesaving drugs or products cannot jack up the price the way Martin Shkreli (5000% increase) did or the way Gilead Sciences prices their drugs ($1,000 a pill for a minimum 86 days treatment). As a patient, I don't want to know, and I should not have to be exposed to, the choice of "not eating" to afford a drug or dying because I cannot afford it. It is simply unethical for these companies to exploit the vulnerable in their quest for profits. Other market verticals that exploits the vulnerable are funeral homes and casket manufactures. They take the opportunity to exploit the survivors when they are at their most vulnerable state of mind with insanely-high and ever-increasing prices.     

Sometimes, however, high prices are the ethical solution.  A few years back, we helped a medical device company to triple their prices. Unethical? No, for this reason -  the device helped improve outcomes by some 50% for certain transplantations. The competing products were simple and cheap, and the company's product was very advanced - yet they had no pricing power, and priced theirs similarly to the simple and cheap competition. With $65m invested, the company had yet to produce a profit, and were about to go out of business unless they could price their product to become profitable. If they folded, thousands or tens of thousands of people would die every year because they were withheld the benefits the product provided. So the ethical thing to do was to increase (in this case triple) the price of their lifesaving product. 

With hopefully not vulnerable regards,

Per Sjofors
Founder/CEO
Atenga Inc

 

 
Posted
AuthorPer Sjofors

Our client sold temporary labor services to manufacturers. Their salespeople were compensated on number of hours sold, and their branch managers were compensated on revenues and profits in a method so complicated that none of them ever bothered to figure it out. The salespeople were trained to focus on the customer and his needs, but very little attention was paid to pricing. Several of the salespeople had exemplary sales skills (and several did not). But they were trained and managed to "get the deal" at any price. The results were predictable...

Salesperson compensation, training and management often lead to lower profits and lower prices. This sad truth probably costs American business billions of dollars in foregone profits. It’s sad because it is not necessary.

Nearly all buyers – even (especially) purchasing agents for large companies – will tell you that they rarely buy the cheapest solution. They buy the one that generates the most differential value (value to their company minus the price). It’s up to the company to create and deliver a higher value than its competitors, and therefore justify charging higher prices. It’s up to the salesperson to understand the elements of value from the buyer’s unique point of view, and then to build the perception of the value he or she is offering. This drives three very specific actions that salespeople need to take in order to win higher prices:

  1. During the presales conversation, position your company as a source of high value, not a source of low price. In a few rare instances, this will terminate the sales process, but that’s usually a good thing, as this buyer is signaling that he or she will buy only on price and the business will probably not be profitable. Salespeople can make statements like “we’re not the cheapest solution you can find, but our customers know that we provide the best value and I’d like to show you why they are willing to pay the difference.”
  2. During presales conversations, ask questions that elicit from the buyers their elements of value. For some it might be a strong warranty, references from accounts they know, timely delivery, good technical support… But the key objective of the fact-finding process is to understand how to express and convince the buyer of the value of the offering.
  3. During final negotiations, resist demands for lower prices. Sometimes this just requires fortitude, but sometimes it requires unbundling structures that let the salesperson remove features, services or guarantees to lower the value commensurate with lowering the price. This forms the basis for productive negotiations. Note: Most companies leave it to the salesperson to figure out which features or services to remove in the negotiation, but this is a mistake. Salespeople are motivated “get the deal” regardless of the profitability and they usually don’t have the data or the visibility to do a good job at structuring unbundles. These structures should be created by those responsible for product management, and taught to the salespeople as part of their training.

So how do your company address these issues? Are the sales person trained to position the company for higher prices? Can they really find out and sell value? Are your product strategy such that the salesperson can unbundle if nothing else works?

Per Sjofors
Founder/CEO Atenga, Inc.

Posted
AuthorPer Sjofors

The company had a well-established brand in midrange audio products, receivers, amplifiers, speakers, and home theatre systems. It had great distribution, and its products were available at retail in big box stores, specialty audio stores and occasionally offered by custom installers as well. As 2009 gave way to 2010, the economy was picking up and competitors were seeing double-digit sales increases.  But this company's sales were virtually flat.  Jim, the vice president of sales, was at a loss regarding what to do. The company's annual sales meeting turned into a shouting match as the CEO berated the sales force, the salespeople blamed high prices and an aging product line and the CFO warned darkly of layoffs if sales did not pick up. As the tension built, the salespeople began to focus their ire on the company's pricing strategy. They reported retailers' complaints that the flagship receiver-amplifier, at $3495, was just too high for the market.  The top management team had no ready response. At the conclusion of the meeting the CEO promised something would be done.  Six weeks later, the company announced price reductions. The flagship product was reduced to just $2845 an 18% price cut.  The salespeople cheered the action and Jim predicted a 25% increase in volume.  The CFO objected strongly, but his concerns were over-ridden.

Three months after the price cut, the scale of the disaster became clear.  The monthly unit sales rate, which had been holding steady in the prior six quarters, had dropped an astonishing 15%. Revenues had plummeted 32%. The CEO was relieved of leadership and left the company four weeks later. He was replaced by the CFO

The new CEO said "enough with gut feel and guesses,"  and  ordered a research study to discover the basis for the disaster and the true value drivers of the buyers.   What he found was that the company's non-audiophile customers used price as the strongest indicator of a product's quality. He ordered acceleration of revision and re-branding of the flagship product, a new "Ultra-Premium" series of products, with a price tag of the flagship receiver-amplifier of $3995. Over the next two quarters, sales picked up markedly, and by the seventh month they had surpassed the previous volume record. Nearly half the new sales were comprised of the ultra-premium products.

Moral:  Lowering the price often does not lead to higher sales volume.

What would you have done in a similar situation? Let the sales people dictate you price? Or not?

With audiophile regards,

Per Sjofors
Founder/CEO

Posted
AuthorPer Sjofors

The first question that Alexander the Great asked when he came to the temple of Jupiter at Luxor was 'What causes the Nile to rise?'. Julius Caesar said that the one thing he most wanted to know about the world was 'Where was the source of the Nile?' The Nile was (is) arguably the most important river in the world; it is certainly the longest. But while "everybody" knew about it, the location of its headwaters was not discovered until 1859, and these explorations and the controversy that surrounded them captured the imagination of the Western World for much of the middle part of the 19th century.

Similarly, "everybody" knows that it's important to sell value rather than price.   Some consultants even go so far as to list the elements of value (the same for everybody): quality product, prompt delivery, low price, good service, a knowledgeable staff. The problem with this approach is twofold. First, if everyone is offering the same drivers, buyers will make their decision based on price.  Second, it ignores the concerns that individual buyers bring to the buying decision. 

People do not pay premium products and services because of what the products do.  They pay for products and services in order to solve a problem, or to generate a result. They make the effort to seek out a solution, or they respond to solicitations, because they have a vexing concern, and need to get it resolved.  Trying to spin generalizations about value, quality, good service into a defensible pricing strategy is doomed to defeat. There is a better way.

Talking about value in such a generalized fashion is not helpful. It's often trivial. Many management teams tell themselves that value is what they talk about.  But, all too often, they present it in terms that almost anyone could use.  The secret starting point is not in the focus on value as an abstraction. It's the control of the sales process to drive focus on the customer's problem, and your ability to solve it.

When I was a young salesman selling computer services, I would often have sales conversations that began  with the prospect saying "We need a report that ..."  I learned very quickly that a proposal for a system that produced the report the user described rarely won an order, even when it reduced the cost of preparing the report, promised less errors, and could be done much faster. And often, when it did, the customer was often unhappy with the result.  I learned that I needed to probe deeper.  "Why do you need the report? What problem are you trying to solve?" I learned that the customer him(her) self usually knew they had a problem, but struggled to describe it in a useful way. To get at the real problem--the headwater for his/her perception of value -- I had to control the sales conversation, ask the right questions, dig deeper, and uncover the real problem that would get the prospect to buy.

I'd like to say I figured this out on my own, but the fact is that my manager was singularly helpful.  Week after week, in our one-on-one meetings, I'd walk in with a pipeline and tell him why I was going to beat the heck out of quota. I'd explain how this customer wanted this report and would pay an acceptable price for a system that would prepare it for him. I'd tell him how much it was costing the customer to prepare the report now, and how the savings were so compelling that the customer was certain to buy. And, week after week, he'd ask me the same questions (i guess i was a slow learner).  Why does the customer need the report?  Who else reads it?  What problem does it solve that is important to the company as a whole? Who owns the problem?  What happens if they continue to prepare it manually?  How can we make our solution so compelling that the customer will pay more than he's being offered from a competitor? Finally I learned the location of the headwaters of price performance.  I learned that the source of value is not in what we did, it's what the customer received, which was a very different thing.

With Historical Regards,
Per Sjofors

 

Posted
AuthorPer Sjofors

I have seen reliable estimates that more than 80% of the sales calls in the United States are made on the wrong person. Nearly every sales executive I’ve asked about this has been comfortable with the estimate.  One executive recently confessed to me “I figure if they’re out talking to somebody, good things will happen. “Clearly, there is some level of mismatch between the sales efforts of most companies and the actual marketplaces they serve.  

There are two sources for this mismatch.  First, companies are often uncertain about who is the "best" customer.  When there is no identifiable target it's hard to hit a bulls-eye.  Best customers are easily defined: they are those who recognize your unique differentiators and are willing to pay a premium price for them. They are actually not all that difficult to identify. But companies rarely expend the time, talent and energy required to identify them. Even less often do they create marketing and sales messages and processes specifically adapted to these most desirable customers. This leads to the second source...

The second source for the mismatch is an ill-managed marketing and sales effort. Even when the company has a good idea of whom to pursue, it often fails to target its marketing and sales efforts on these ideal customers.  One company I spoke with a week before this writing had a target definition ("IT managers with midsized companies") but expressed frustration that so few of their customers fell within this definition. The management had no clue at all whether its pipeline was targeted correctly or not. The management had a target, but the marketing, sales force and price strategies were not aligned. So salespeople were "on their own" to pursue such opportunities as came their way, and the company compensated for the mismatch by offering high discounts.  The company had a targeting policy, but neither supported nor followed it. In effect, they were trying to sell to "everybody."

One consequence of the attempt to sell to everybody is the downward pressure it exerts on price. As companies attempt to close buyers who are not squarely within their target market, the unavoidable reaction is to lower the price (or raise the discount) in order to make the offering more attractive.  As companies make this a habit, they begin a fruitless search for the price that will make customers buy. 

How do you target your sales people? Or do you?

Best regards,

Per Sjofors
Founder/CEO

 

Posted
AuthorPer Sjofors

Here is a link to the a interesting article on Sonys' new E-Reader. 

http://www.marketwatch.com/story/sonys-latest-stumble-an-overpriced-e-reader-2014-04-07?cb=logged0.39363416377454996

I'm not saying the price of this product is right or wrong - but I do have some insights:

- Early adopters are not price sensitive (especially in technology), so a high price for an innovative product is not always the wrong strategy.

- It will probably take Sony some time to refine the manufacturing process so a much lower price of this product now, together with a large influx of orders is really the same as shooting themselves in the foot.

- Sony, unfortunately lost virtually all its brand value that would be able to defend this higher price of the product

- Good marketing could generate a pent up demand for this product and I have not seen any of it. 

ith happy reading regards.

Per Sjofors

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AuthorPer Sjofors