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Optimal pricing strategies balance supply and demand perfectly. However in the fast-moving online world it is difficult to sustain price competitiveness - especially in the hyper-competitive travel and electronics industries. This presentation brings together pricing theory with established best practice to draw some conclusions. We also outline how software vendor Lixto tackles pricing optimisation on behalf of its clients in these industries.
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…optimise your IT investments 1
Welcome to:
‘Price Optimisation Technologies’
A webinar sponsored by
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About Bloor Research• Established 1989, is the leading independent European IT
analyst company and serves Europe and North America• Specialist IT product / market research reports• White papers, product reviews, customer case studies• Strategic Advisory Services for vendors and end users• Free IT articles @ www.IT-analysis.com /
www.IT-director.com
www.bloorresearch.com
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Agenda
1. The new importance of optimised pricing
2. Industry dynamics
3. Pricing considerations
4. Pricing optimisation
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Pricing: now the most important marketing variable
= we all have less money to spend on luxuries like travel and electronics
Falling: GNP
Stock marketsHouse prices
Credit availabilityCurrency exchange rates
Employment
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Price discipline erosion by challengers and followers
Customer Perceived Value
HighPrice
LowPrice
Pioneers Leaders Challengers Followers
High Low
Nichers
Average Price
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What to do? McKinsey on pricing in the downturn
1. Watch for sudden shifts in price structure
2. Monitor customer-level profitability
3. Adjust to changing customer needs
4. Update price sensitivity research
5. Monitor your industry’s microeconomics
6. Study your suppliers
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Many businesses are ill-equipped in pricing automation
• Manual environmental monitoring and ad hoc spot-checking
• Analysis in spreadsheets• Paper-based static reporting• Lack of drill-down to detail• Pricing actions based on experience and
best estimates• Slow to respond to competitive threats
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Attributes of the Travel & Electronics Industries
• Driven by GNP and consumer ‘feelgood’ factor• Global price transparency and intense competition• Commoditisation and disintermediation• Seasonality and demand uncertainty• Supply chain / logistics oriented• Infinite number of product / service price offers that
change daily or weekly• Different offers and prices for different geographic
markets
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Online Travel
• European market is valued at 50Bn+ EURO
• In the UK, of those planning holidays, 76%
researched destinations and 66% booked flights
and accommodation online
• Online holidays bookings are easier and quicker;
better priced; and offer 24/7 availability - only 22%
trust advice from travel agents or holiday firms
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Online Consumer Electronics
• European market is valued at 50Bn+ EURO
• 77% of electronics purchases are researched
online; customers test and buy at retail stores
• 50%+ of electronics consumers use web
comparisons - comparing prices online is easier,
and there is a wider range of products
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Consumer Online Behaviour Varies
Online Travel:• An intangible service• An impulse purchase for a planned event• Needs source credibility• Online search for best offers• Online booking
Online Electronics:• A physical product• A researched capital
investment• Needs physical evidence• Online comparison
creates shortlist• Check retail outlet
availability
Vs
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Pricing is key to success Online
(1 = Low; 5 = High)
Consumerbargaining power
Supplierbargainingpower
1(Low)
5(High)
2(Low)
5(High)
5(High)
Barriersto entry
Availability of substitutes
Competitive Intensity
PriceCompetition=
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Economic pricing
Price ($)
Volume (Units)
Supply
Demand
Optimal price
Dependencies:• Market maturity• Commoditisation • Oligopolies /
Brands• Elasticity /
sensitivity
Economy price
Premium price
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The internal circular argument
Volume
Cost
Demand
Price“Yes, but . . . “
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‘Good’ pricing is not easy . . .
• The maximum a customer is prepared to pay / perceived value / price points
• Pricing for pioneers, leaders, challengers, nichers• Low cost operators, price makers and price takers• Pricing for segments / products / place / timing• Product line pricing, utilisation and yield• Penetration / loss leader pricing vs skimming• Competitive parity• Cost-plus (margin) or mark-up pricing
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Customer Perceptions On Price / Quality
RelativePrice ($)
Relative QualityLow
Low
High
High
PremiumSegment
EconomySegment
Poor Value
Good Value
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How pricing automation helps
• Define automation around your market “space”• Regular reporting of competitor online prices• Visibility of ‘whole product’ components• Alerts of market events such as stock-outs and
over-supply• Workflow to turn insight into pricing actions
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How Lixto works
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What do you get?
1. Pricing dashboards and visualisations
2. Tailored for your business rules and workflow
3. Pre-built reporting, ad-hoc analysis and alerts
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Summary and Conclusions
Pricing is moving from an internal to an external environment management focus
Optimised pricing is key to online revenue and profits in a downturn economy
Automated pricing solutions that reduce complexity and improve real-time price responsiveness should be considered
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Thank you!
Gerry Brown
Senior Analyst, BI & CRM / Digital Marketing Bloor Research