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Part 2 (this page): [CRM] [Value Led Dynamic Pricing]
Part 1 (previous page): [Value Judgements] [Belief and Attitude] [Behaviour]
With a customer relationship approach a company will use every interaction
(touch points) to seek to build a picture of the needs, motivations and values
of each of its customers. It
will then personalise the product and service to maximise the value proposition
and will set a price that is competitive for that value. Depending
on the customer, the product type, its complexity, etc. the company may provide
opportunity for the customer to personalise
the service. That way, the customer becomes the final arbitrator in selecting
various value added components. Companies embarking on CRM will recognise
that behaviour will change over time and in different circumstances.
Example: a business traveller taking a personal holiday for all the family may well be prepared (even economically forced) to travel economy. An airline taking a CRM approach would first try to ascertain why the person was flying rather than what he wanted (a ticket). It may be able to ascertain the situation by looking at where the caller was calling from (office or home), time of year (did she book a personal holiday at the same time last year?), the destination (New York or Greek Islands), the credit card being used (business or personal), and the number of people travelling (1 adult or 2 adults and 3 children).
Beyond personalised products and services are experiences and transformations. When a company offers a life changing experience or transformation, then the value added can be significant. Take, for example, a bank with a customer that is falling behind with his loan repayments. Rather than exhorting a customer to cut down on expenditure they could instead help the customer with a career or job change that both doubles the customer's income and is more satisfying for them. That way both parties make significant financial gain, together they have a more enduring relationship, and it is highly likely that the customer will become an advocate of the bank.
Value based propositions that take into account the individual values demands
a flexible pricing structure. When we combine this with value factors that
change with time and then factor in the general competitive environment and
supply and demand, prices will need to be very dynamic. The model below
illustrates various pricing strategies from the customers perspective.
| 1. With low values and steady demand and supply, customers in this sector
will look for low priced commodity products, for example plain white sliced
bread that are sold for as little as £0.30 in UK supermarkets.
2. When demand rises and supply is short, then customers from sector 1 will look for substitute products and may be prepared to pay a little more. For example they will switch to whole meal bread at a cost of say £0.45. Should supply rise, or the manufacturer run a special promotion, so that whole meal bread now costs £0.30 then a sector 1 consumer might well try this product.
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| 3. Customers with high values will seek products that satisfy those values and generally will expect to pay a higher price. Health conscious customers might select a granary bread costing £0.85. In some markets, customers may have to pay for customised goods | 4. When demand rises and supply is short, then customers from sector 3 will look for closely comparable products and for a short time will be prepared to pay higher prices rather than compromise their values. With no granary bread on the shelf these customers may well buy an exclusive branded product such as the Duchy organic bread from the Prince of Wales range costing £1.25. |
By understanding customer's purchasing behaviour then suppliers can
set matching pricing strategies.
Variable Mid-Price Substitution Product Sector 2 suppliers are in a higher value yet still competitive market place. They will closely monitor the competition, be wary of new entrants, and seeking to grab opportunities. Promotion will aim to differentiate on quality and service. In times of general market shortages they should stay firm on price, even raising it, and they also should seek to present their products to sector 1 customers as being suitable substitutes and to sector 3 customers as being affordable and almost as good. In times of over-supply they should be prepared to be flexible on price. |
Dynamic High-Price Comparable ProductSector 4 suppliers are in a challenging market place but one that can be very profitable. In times of general market shortages and/or when sector 3 customers have urgent needs they are quick to supply at premium prices. Their promotion emphasise the value added and the immediacy of supply. In times of over supply they must emphasis service and be ready to promote and supply other products where demand is higher. |
Stable Low-Price Commodity ProductSector 1 suppliers are in a very competitive high volume low cost market place. Their promotion will emphasise price and continuous supply. If they have other higher value products in their range then in normal times they should take the opportunity to present the case for trying these, perhaps using special promotions. |
High-Price Specific (Niche) ProductSector 3 suppliers are in a high value and probably niche market place. Promotion will aim to align product and service features with consumer's values. Prices will be customised to client's needs and valuations. In times of general market shortages they should stay firm on price, even raising it, whilst continuing to emphasis the value added. In times of over supply it might still be worth while to have long lead times to make the product seem exclusive. |
Sector 1 will have a few major players. Volumes will be high with products from different companies being of comparable quality (in some markets like oil could well be the same product coming from the same plant). In fluctuating markets pricing will be set by a mix of long term contracts plus auctions and speculators to smooth out the peaks and troughs.
In sector 2 there will usually be many small and medium enterprises (SMEs) but with customers seeking competitive quotes and often switching suppliers then even in normal times trading will be difficult. In times of over supply they will be extremely taxing and the business will be at risk of collapse. In times of under supply their will be opportunities but will these SMEs see them and will they be fast acting enough to take them? In the longer term the situation is not bright as many markets are polarising into sector 1 or sector 3.
Sector 3 companies are generally smaller companies in a niche market place with clearly identifiable customers and developed relationships. In normal times their challenge is to fully understand customer requirements and then to specify and price as custom product and service offering. Their main threat is sector 2 companies who segment the market and offer mass customisation. In times of shortages their challenge is to retain and satisfy their valuable customers.
Sector 4 companies are very dynamic with well developed monitoring systems
that keep track of both changing market conditions and buyer needs and re-setting
prices frequently. Their challenge is to quickly identify and meet market
opportunities whilst not appearing to be vulture like, exploiting the current
situation. They will seek to emphasis the long term value of using them as
a supplier, rewarding loyal customers with priority supplies in times of
shortages.
Back
to Part 1:
[Value Judgements] [Belief and Attitude] [Behaviour]
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