Number One Pricing Question to Ask

Last week I presented a set of  questions on pricing. The premise is, a marketer must pose and answer these questions to arrive at the pricing. Given that list of questions, the meta questions are,

  1. Where does one start-  what question does one ask first?
  2. What is the relative importance of questions – so one only seeks most relevant data with limited time and resources.
The first question is important for marketing strategy and the second is relevant to the notion of value of information.
I presented a randomized list of 16 questions to Product Managers, Marketing professionals and Pricing Practitioners – the regular readers of the blog. I asked a lot from them, to spend considerable time to re-order the questions in what they believe to be the right ranking order.
This was not a survey, this was meant to be a thought exercise even though I used a powerful survey tool, SurveyGizmo. Ranking questions are the most time consuming and hardest to deal with in a survey. If you are doing a real survey I recommend you do not use more than 5 items to rank.  Again, I was not surveying so asking 16 questions to rank is not bad.

Did you miss the questions last week? You can gain access now!

A complete discussion of the questions, how one goes about answering them and what other key questions that were left out are too big to handle here.  Let us ask the smaller problem – What comes first?
Let us see the top two ranked questions based on the input from the practitioners:
  1. What is the product?
  2. Who is the customer?
One should not treat this as you first ask about the product and next ask about customers. A simple ranking estimate hides the bigger insight here. There are indeed the two most common starting points for pricing.
If you started with  the product your next question will invariably be the one that is tied to the product. Asking questions about the customer is not the default next step for  all who chose to start with the product.
You cannot be that wrong if you start with either one of these questions. But if you start with the product, when do you come back to worrying about the customer?
Starting with product comes with traps and false signals that can easily lead us to the wrong destination. Traps like
  1. Product features over benefits  – the features deserve the higher price tag
  2. Product benefits over perceived value – the Value Waterfall
  3. Cost to deliver the features
  4. Hitting the Value Step function – failure to deliver the threshold or delivering way too much.
  5. Failure to see the needs and wants of the segment and why they are buying the product, leading to product driven innovation rather than customer driven innovation.
A careful and evidence driven marketer may know to avoid these traps. But in a growing market, with weak competition or in the presence of other such externalities one can succeed in the short-term despite falling into the trap.
Success only lasts until the next disruption. That is why you see so many brands fall so quickly out of favor.
Blockbuster started with the product and stayed with the product. They relied on the idiosyncrasies of the product, like rewind fee (VHS days) and late fees for revenue optimization.
Netflix on the other hand started with the customer. They knew that their initial product, DVDs by mail, “was Doomed“. Starting with the customer for pricing enable them to practice revenue optimization that is tied to customer preferences and not the product.
My recommendation? Like many  marketing practitioners who gave their input for my questionnaire, I recommend  starting with

Who is the customer?

Want to know more? Look for more articles in this series.

Positioning Your Product: What is Relevant to Your Customers?

Update 1/8/2012: Times reports a study that found frequent use of tanning beds affects brain activity.

Medical researchers, dermatologists and FDA have been worried about the dangers  of frequent tanning salon visits. FDA estimates that people who begin using indoor tanning before the age of 35 increase their melanoma risk by 75%.

To these stakeholders, which one of the two side-effects of indoor tanning would be the worst case scenario and hence worth putting their de-marketing dollars behind?

  1. Getting skin cancer
  2. Getting wrinkles

It would appear it is skin cancer message.

Now consider the target customer segment – young women who are not satisfied with their appearance, want to look attractive and “hire tanning salons to improve their skin tone”. Which one of the above two outcome would connect with them?

In the research published in the recent issue of Archives of Dermatology, researchers found that,

They’re not worried about skin cancer, but they are worried about getting wrinkled and being unattractive

It is not a surprise that to the segment that hired the product to make them attractive, a message that the product does not really do the job well will connect better*. This might sound like hindsight bias but the study’s hypothesis included appearance focused messaging and the experiment verified the hypothesis.

Positioning is finding out what is relevant to your customers and what job they are hiring for and applying for it. This is something easy to overlook when we see products as a portfolio of features, results of our superior innovation and R&D and not as means to deliver benefits to our customers.

Even the biggest names in marketing (P&G)  have tripped up on this. In her book Soap Opera, WSJ reporter Alicia Swasey wrote about P&G’s  failure with their pain reliever Encaprin (Have you heard of it?), an innovative drug that was easy on the stomach.

P&G chose to highlight easy on the stomach message, but to its customers pain relief was more important than stomach comfort. P&G pulled the drug after poor performance.

It does not matter what message you think is important to your customers. The message has to be validated with your customers.

Do you know what is relevant to your customers?
Do you practice customer driven product development?

*Footnote: In the tanning salon case, there is availability bias among the young women. They see wrinkled skins around them more often and may assign higher likelihood and weight than they do to skin cancer.