Price Image (Guest Post: Florian Bauer, Vocatus AG)

People say of the market researcher's profession that it's terribly dry: ruled by analyses and statistics, fighting it out between levels of significance and correlation analyses. At Vocatus, Florian Bauer and his colleagues see it in a totally different way. Please enjoy his interesting blog post below about how price image can influence buying behaviour. 

Price Image: The hidden force of Pricing

Price image beyond value for money

One of the unspoken assumptions of marketing goes like this: Increase value-for-money, and your customers will thank you with improved price perception and increased willingness to buy. However, this "the more the merrier" rationale doesn't always prove to be true.

The German newspaper market is facing its most severe crisis for at least 60 years. Hundreds of jobs are threatened due to the closure of famous and prestigious national titles such as "Financial Times Deutschland" and the bankruptcy of the "Frankfurter Rundschau". This indicates major changes in terms of how people are consuming news and media, one of them being the sheer lack of time to read.

"The more the merrier" means that publishers whose goal is to stabilize revenues while advertising sales and circulation are in decline are trying to sugar the pill of price increases via noticeable increases in coverage. However, they are ignoring the main reason why people cancel a newspaper subscription: the "pain" of throwing away a paper that has hardly been read. Increased coverage only aggravates this problem.

This sheds light on an often neglected facet of price image: utilization. What is crucial for price perception is not the potential value-for-money provided, but the degree to which customers are able to utilize this value. It’s like buying a cookbook even though you know that only a minority of the recipes will suit your taste, and even fewer of them will ever be cooked.

Price image as a multi-dimensional concept

A leading provider of last-minute package tours recently introduced an online price comparison tool. For every search that a customer executes online, the tool reports not only this provider’s price, but also the best price of its competitors (via a real-time search on the respective competitors’ websites). This tool led to an overall increase in conversion as it addresses a least two price image related motives:

If the provider’s price is cheaper, one of the motives it addresses is transparency. People who want to book a tour online usually compare the prices of several providers and therefore seldom stick with the website they visited first. The price comparison tool makes those further searches unnecessary, creates transparency, and thus increases conversion.

But even if competitors’ prices are cheaper, a significant percentage of customers still book with this provider. The main reason for this is fairness. People who stick with a provider even if it is more expensive assume reciprocity: If they demonstrate fairness by not squeezing the margin, they expect fair treatment from the local agency rep if there are any issues at the destination.

Price image as a driver of purchase decisions

Price image is the hidden success factor in pricing in many sectors – especially in retail, wholesale, and generally in all B2B and B2C industries with a wide variety and/or huge complexity of products and prices. Think about retail: The decision for or against a certain retail chain is mainly based on the retailer's price image, not the prices of actual products. Hardly anyone is aware of actual prices, but the general price image is simply attributed to the prices of individual products. There, price optimization is not only about defining the price of a large number of specific products, but often more about how to optimize the price image as the first hurdle in the funnel or even as the crucial price aspect in the whole decision process.

If price image is reduced to value-for-money, the only way to improve price image is to either reduce prices or increase value. A multidimensional price image construct, including for example transparency, fairness, and other relevant dimensions, much better explains the levers which companies have in optimizing their pricing strategy, and allows for more innovative and profitable pricing approaches.

Guest Post: Florian Bauer, Vocatus  

EPP RESEARCH PARTNER, SOLUTIONS-2, WINS SME GOLDEN BRIDGE AWARD

Several times per year, Nicole Huyghe, founder and CEO of Solutions-2, teaches participants to our EPP Advanced Pricing Toolbox training all the ins and outs of pricing research techniques.  She enriches the training with real-life cases and examples from her 17 years of cross-industrial experience to illustrate the finer details of each method.

On Thursday 15 November 2012, Solutions-2 received the award for the most successful Belgian or Luxembourg SME exporting to the United Kingdom.

Michel Vanhoonacker, BLCC Chairman said: “It was immediately clear to the Jury that the enthusiasm and creativity of Nicole Huyghe, founder of solutions-2 is key to its commercial success in the UK and Belgium. After she lived and worked for several years in London, Nicole set up solutions-2 in Belgium but worked mainly for UK companies and became an immediate export success. With the recent establishment of a UK office in London, she has gone the full circle. The power of solutions-2 is the way in which they turn data into visual story telling.” 

Nicole Huyghe, founder and CEO: “We are participating in the Golden Bridge Awards because we are proud of the growth of our company, and more particularly the export to the UK. What started as a one person company with one client in the UK, has now grown to a very solid and much respected company with more than 50 clients and even our own office in the UK. We very much would like to celebrate this success, together with our team and clients as they have been the drivers of our growth. The Golden Bridge Award is the ideal opportunity for this.” 

The Golden Bridge Awards, organised by the Belgian-Luxembourg Chamber of Commerce, took place in Central London on Thursday 15 November 2012 at the Northumberland. 

For more information about the upcoming Advanced Pricing Toolbox trainings for 2013 have a look at our events agenda.

Price Intelligently (Guest post Erik Grueter)

We are pleased to welcome Erik Grueter today as guest blogger on the European Pricing Blog. Enjoy his post on the science of supercharging your profits by means of a well-crafted value based pricing strategy.  Have a look at their blog at http://blog.priceintelligently.com/ for some more excellent pricing content. 

Supercharge Profits with a Value Based Pricing Strategy

Great companies don't just stumble into the perfect price for their product. They know that there is a huge amount of science and strategy that goes into sales, marketing and product development. Simply guessing at how all of that effort should be priced would be downright wasteful. 

Instead, what the best companies do is price their products along a value metric. They do this by  determining the core value their product provides, then breaking that value down into its smallest unit. Finally they charge for that unit along a sliding scale. We will discuss how to apply this strategy to your business, and show you the enormous impact on growth value-pricing can have by reducing customer churn. 

Unlock revenue by determining your value metric

Pricing along a value metric is difficult. It requires you to do deep customer research through surveys and customer discussions. You’ll need to determine the value your product provides that is ultimately driving a customer to purchase. What is the core value you offer that the customer requires from your product? Once you have determined this, you’ll need to determine the smallest unit of that value. For example: If you are a farmer selling eggs, you are not likely to sell half of an egg. 

Pricing along a value metric makes the second step in this pricing process much easier. Once you have determined your value metric is eggs, you can price along a sliding scale for the number of eggs sold. A family might only need a dozen eggs, while a restaurant might need 1000. You can think of your pricing tiers as the three or four most likely places a customer would slide their value requirements along that scale. This makes your pricing much easier to understand and more transparent to customers. 

As your company grows, you can continue to add additional value metrics to grow revenue. David Skok's blog provides a great example of how one can accomplish this. Have a look at the below chart:

Skok’s chart demonstrates how to increase the number of dimensions in your business model. Let’s say that you have been charging only for the number of eggs your customer purchases. You could add an additional revenue stream by offering customers a home delivery service. Families could pay a subscription for monthly delivery service. Restaurants might need you to make deliveries each week.The survival of subscription based software companies depends heavily on its ability to scale pricing along a value metric, and upsell current customers into higher tiers, because all subscription based companies experience churn. 

See the below graph, also from Skok’s blog, comparing two companies with differing churn rates. Even a fairly low 2.5% churn rate can cause a significant difference in growth over time. Imagine how fast your company would grow if your customer churn was at zero. Imagine how much faster you would grow if customer churn actually went negative! Explosive growth of that nature is possible with the right pricing strategy.

Utilize your value metric to achieve negative churn

Negative Churn means you are making more from upsells to current customers than you are losing when customers quit your service. Have a look at that above chart again. It is clear the massive impact a reduction in churn can have on growth. If you price your product or service properly, it is possible to achieve negative churn in your business.

When you price along a value metric customers who require more units of value over time will continue to add more and more money to your bottom line. These hippos will happily eat more and more of your product as their company grows larger and more dependent on your value. Additional features aside, these big customers will have a clear understanding why they are paying more as they scale. 

Pricing along a value metric also lets you grab entry level customers in the early stages of their company’s growth. You can drive adoption to smaller enterprises without lowering your quality perception simply by providing fewer units of value. Even if the number of value units you provide is small, you can still be perceived as a top product if the quality of what you are providing is high. As long as the number of customers who require more value from your product over time increases, you can scoop up customers at every stage in the buying cycle 

Think back to the last legendary startup story you heard. Undoubtedly, blazing fast growth was a huge part of that story. By pricing along a value metric and employing multiple pricing dimensions, you ensure that your customer retention is high and that your customer churn is low: perhaps even negative !

Guest post : Erik Grueter, Price Intelligently

Proudly annoucing the Pricing Maturity Assessment

Maybe you've already read about it on our Twitter our LinkedIn Company Profile in the past few weeks: the first Pricing Maturity Assessment is coming!

In the days to come, you will get the opportunity to meet a total new way to optimize your pricing. The European Pricing Platform, in coorperation with Pros Pricing, has developed a tailored pricing training for each individual Pricing Expert.

You can already read about this on our EPP Portalsite , but that's ony the beginning... Keep an eye on our website, Twitter or LinkedIn... You will be swept away by so much pricing knowledge to come!

Model N launches International Reference Pricing Solution for Global Life Sciences Manufacturers

Solution Combats Price Erosion Stemming from National and Regional Price Control Programs

Redwood Shores, USA - London, UK - Hyderabad, India --- October 11, 2012

Model N, Inc., the leader in Revenue Management solutions, has announced the general availability of its International Reference Pricing (IRP) solution to pharmaceutical manufacturers operating globally.

Model N and the European Pricing Platform (EPP) are close partners since 2009, co-organizing the annual Price and Profit Optimization Forum and providing the Life Sciences industry with thought leadership in the areas of Commercial Strategies, Reference Price Management, Parallel Trade Management, Tender Management, Price Execution and Incentive Management. "The Model N International Reference Pricing platform was first presented at the 2012 Price and Profit Optimization Forum last May in Montreux, Switzerland", said Pol Vanaerde, President of EPP, "and its launch marks an important step in the Model N - EPP partnership".

Model N IRP addresses one of the massive Life Sciences global market challenges

To contain growing healthcare expenditures related to drug costs, a rising number of governments seek to control prices with international reference pricing programs. These programs officially set a drug¡¦s national or regional price based on price benchmarks in other countries. Failing to coordinate price setting at launch and subsequent price changes can result in missed opportunities amounting to tens of millions in revenues. In addition, more and more governments across the globe require that manufacturers proactively report reference prices. Failure to comply in an accurate and timely fashion often puts manufacturers in a weak negotiating position with governments.

Model N International Reference Pricing delivers significant business and operational benefits to pharmaceutical manufacturers by:

• Supporting data-driven Pricing decisions from pre-launch to launch to growth to maturity, by providing Global and Local teams with full visibility into risks and opportunities associated with future price dynamics
• Helping Government Affairs teams remain compliant in mandatory governmental price reporting while ensuring Ministries of Health are correctly applying reference rules
• Connecting Market Access, Pricing and Government Affairs teams around the world in real time enabling efficient collaboration and effective decision-making
• Increasing pricing data transparency across the entire organization, enabling more accurate financial planning 

Model N IRP has already proven to deliver significant gross margin benefits

"Top Pharmaceutical executives are clear that the new economic reality requires rapid decision-making with integrated collaboration and controls across regions to deal effectively with the needs of International Reference Pricing compliance. Departmental and Excel based solutions will not work. The solution has to be global, unified, real-time and highly collaborative." said Lawrence Whittle SVP Global Sales and Marketing, Model N Inc. "Over the past year, we have worked closely with our pharmaceutical partners to create a robust IRP solution that meets or exceeds these requirements and look forward to helping industry leaders overcome their reference pricing challenges and combat global price erosion."

About Model N International Reference Pricing

Model N International Reference Pricing helps global manufacturers mitigate reference pricing risk and profitability erosion through a powerful combination of data management, software applications, and best practices. Capabilities include:

• Single Global Repository
• Global Price Governance and Collaboration
• End-to-end with data integration, configurations, workflows, analytics, reporting
• Designed for rapid deployment and time to value of under three months
• Web Based user interface designed for functional users
• Subscription-based solution eliminates the need for complex capital acquisition processes or budgets 

Supporting Link

 

Model N International Reference 

Pricing Social Media Links 

Follow Model N on Twitter 

Follow Model N on LinkedIn European Life Sciences Price and Profit Optimization Forum 

About Model N 

Model N, the leader in Revenue Management Solutions, drives improved pricing, margin, and revenue performance through a powerful combination of best practices, highly configurable software applications, comprehensive services, and actionable analytics across the complete functional spectrum of pricing, contracting, rebating, sales, and marketing. Model N leverages its deep industry expertise to support the unique business needs of Life Sciences and High Tech manufacturers across more than 50 countries. Global Customers include: Allergan, Amgen, Atmel, Boston Scientific, Bristol-Myers Squibb, Dell, Hospira, Johnson & Johnson, Linear Technology, Merck, Marvell, Maxim, Micron, Nokia, Novartis, Novo Nordisk, ON Semiconductor, STMicroelectronics, and Watson Pharmaceuticals. Whether you are an emerging business or a global leader, Model N results in revenue.

http://www.modeln.com/

Model N is a trademark of Model N, Inc. Any other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

About the European Pricing Platform

European Pricing Platform (EPP) is a not-for-profit organization and has become the leading knowledge sharing place focusing to support business management, pricing and profit optimization professionals and CxO-level executives in Europe over a variety of industries and sectors. The EPP mission is to be the on- and offline pricing media for international decision makers in a wide range of industries. The interactive collecting, sharing of best practices and development of pricing and profit optimization know-how are the key elements of the platform. EPP is dedicated to the professional development of the individuals and companies involved in the process of pricing and profit optimization. To learn more, visit the website at http://www.pricingplatform.eu