Price changes in business are inevitable. However how the companies make their price hike without offending the customer is critical part of business approach which the article highlights
People resist change. Acclaimed ace investor Warren Buffet once said, “You can determine the strength of a business over time by the amount of agony they go through in raising prices”. Gradual and small changes may not be noticed by the consumers. Being an ardent small data fan and marketing enthusiast, I observe these changes and how they impact consumer behavior and came across two interesting case of price hike a couple of months back – One product with monthly subscription (cable service provider which we will call Cable TV) and other a FMCG company with a staple bread as product (which we will call Tasty bread). Cable TV increased the pack price of its services from Rs 350 to Rs 400 while Tasty bread increased its prices from Rs 35 to Rs 40. A price hike of exact 14.3% in both cases. So how the two companies introduced the price hike in the market? Cable TV never messaged about the price increase as shocker for many came at the time of recharge. They would have used other modes too like SMS. On the other hand, Tasty bread while increasing the price offered a free pack of another product (worth Rs 10) with the bread. It continued for more than a fortnight and finally after it the freebie was withdrawn, while the new prices got established into the consumer mind. We have seen multiple cases of price hike around us in various product categories be it increase in recharge packs, consumer durable or services. How the customer responded to the increase in product prices after online companies slashed their discounts is known. The customers’ response to price hikes will vary. It will depend on the nature of product, price point (low or high), frequency (purchase and usage cycle), nature of usage and need or criticality of product in the life of customer and the way product is consumed (personal or shared product). While it may be critical for company topline, the above factors need to be evaluated. With customer psychology of seeking pleasure and avoiding pain, the product manager needs to evaluate how the price hike will be taken by customer. Do customer have other competitive product or substitute to switch and what is the total cost of switch also need to be evaluated? In the case of Cable TV, being in a gated community, the freedom to install our own satellite dish was prohibited. With limited choice what psychologist called the principle of autonomy and reactance got applied. Despite the agony of one-sided case of price increase the option was to stick to the service provider. While with Tasty bread, with multiple option available in the market and gradual process of conditioning with freebies, the price increase was accepted happily. In both the price hike cases, the final decision was to stay with the price increase however it created a diverse affection for both brands, one positive and one negative.
0 Comments
Anyone managing a team in business to know his team first to get maximum out of them
In Hindu epic Ramayana, lord Rama wanted his army to cross over ocean to go to Lanka. He worshipped Varuna, the lord of ocean to give them the way. It didn’t work as Varuna was not pleased. Rama became furious, lifted his bow and aimed at sea with his divine weapons with powers enough to dry up the ocean. Then Varuna appeared and told lord Rama that his act will destroy the sea-life and its ecosystem. He told Rama, that a vaanara (monkey) in his army with name Nala (who was son of Vishwakarma, the architects of gods) has expertise to build the bridge. Finally, with the help of Nala, the fabled Ram-Setu (bridge) was build. The above snippet from Ramayana seems a known story. Shift to the corporate world. Can you recall, a classic interview question (even if it’s is not asked we are ready for it with answers) - What are your key strengths? Times fly, candidate is part of our team, do we still remember his background, skills and strengths? What about your subordinates in an organization who you get as legacy once you join it. Remember…. you are not Lord Rama! So, the first principle of team management - It is critical to know your team and their strengths first to get the best out of them. In case you got team in your new assignment, take your time, ask your HR to give their resume and have an informal discussion with them to know them better. As with mundane work-life later you may not even remember that you have Nala in your team…. It was my first major role change in the initial days of my career with telecom company (Fascel Limited, later Vodafone) where I was given the responsibilities for tariffing (pricing) in marketing. From that stint, I have explored and got deep understanding of the power of one of the P’s of marketing mix (which formed basics for any marketing course). In the new age digital business, pricing is used effectively and sometimes (very) loosely by companies. Growth hackers look to experiment with it (pricing) to mop up new subscribers. Seasoned marketers use it to retain and win loyalty. Dynamic pricing is used to push customer decisions. Pricing is not a mere mathematical equation derived from cost plus profit equation. It should never be looked in isolation as it has lot of reference to the human psychology. As saying goes “you can't judge a book by its cover” but for products, large part of judgement is made from pricing only. Let’s take a case of well-funded ePharmacy startups space as it has suddenly become hyperactive with above-the-line and below-the-line campaigns by players like Medlife, Netmeds, Pharmeasy and 1mg. The space is crowded one and has other marginal and regional players which vie for their share-of-pie. But is discounted pricing the only tool available to attract? Though the discounted pricing attracts the eye-ball share, the decision element hierarchy is three-layered as below as per me: As expected by a marketer, a first-time customer gets attracted to discounted pricing leading to trial. Post-trial as customer experiences the product, she may still go for multiple (digital) brands and then based on her experience with them, the decision hierarchy may interchange between convenience and brand.
But what happens when your neighbourhood store or retail chain say Medplus offer you same discount (which actually happened as last week they unleashed the 20% off campaign across all stores)? Convenience takes over the brand as the most important decision factor (discounted pricing) has been marginalized or vanished. The customer psychology research says, “familiarity drives attraction”. Despite building a digital brand, customer drift to offline may happen. Google Bain Consulting and Omidyar Network study says 50 million online shoppers dropped out in India especially in tier-II and lower cities due to poor internet and lack of content in vernacular language. However, this also calls for case to understand the drop-in metros and urban areas. Was discounting only driver of business? Pricing can be used as an ammunition to drive and mop up more uses, unless your conviction level puts a case where post the cool-off period of pricing war, you will be one of the survivors. We have a classic case of Jio in telecom industry which mopped up huge customer base effectively with pricing. However, the growth for Jio is not only by driving trial but by constantly thriving to enhance the customer experience too. But do remember people also use multiple telecom service providers, Is that the case in your industry too? Learning: Use of discounted pricing strategy calls for understanding the business landscape of your industry and your business objective, driving-factors for customer and a strong retention plans to take the customer journey forward. Based on your objective such as to clear inventory or drive trial, discounted pricing can be taken as short-term strategy or it can be used as long term too if you want your brand to be a price warrior. Choice is your… This case is being set-up to reflect the few concepts of behavioural psychology working around us
Mr. X was holding a postpaid plan of a leading telecom operator which gave him the benefit of carrying forward the unused date every month, a win-win situation for both (operator and customer). Operator retains customer with this offering while for customer it works as loss aversion where customer is able to avoid loss rather than equivalent gains. Data prices are going southwards and considering his actual average usage, the customer will save Rs 100 (assuming existing plan of Rs 1,000) if he moves to new plan. But the benefits on his current plan (Rs 1000) are 25% higher while he will only save 10% in cost. With telescopic benefits, the anchoring works where customer compare the benefits in his existing plan as reference point (incremental prices v/s incremental benefits) as it is the only information easily available to him. The psychological balance of time spend and money saved to initiate the process to downgrade with either a call center call or store visit is already impacting his decision. The customer has also experienced a social proof of increase in data usage due to efficient networks, technologies, devices and processing power among his closed acquaintance which again impact his decision. (The self-service portals will only push and show him an upward path or plan to UPGRADE) What happened next? Customer continued with the same plan irrespective of his usage (status quo) How Case Changes for a Rational Thinker The rational thinker Y was in same situation as of X. One day, the astronomical figure of his unused GB’s balance made him realize that he need to relook his plan. He checked his past usage, his requirement and found that now Rs 999 is suitable for him. He quickly calculated his savings of Rs 1416 (Rs 999 + 18% GST) which saves him a rental for more than a month. To reinforce his decision and savings, he used the concept of reference pricing and calculates his savings with the reference of fixed deposit rates. With existing fixed deposit rates of 7% per annum and as he was on 20% tax slab, he calculated that he need to put Rs 25,285 in fixed deposit for a year to get similar returns (savings) from his plan change Calculation: Interest = Principal * Fixed deposit rate per annum * Net (post tax) = Rs 25,285 * 7% * 0.8 [Rs 1,416] What happened next? Mr. Y got his plan changed. Now he is already running some thoughts in his mind, what he can do with the saved money :-) With multiple factors impacting our decisions from small to big in our daily life, understanding their impact is very critical for a marketer. In this case, we can’t advise the telecom operator to limit accumulated GB’s or phased expiry of carried forwarded GB’s unless we have an evidence that it triggers such behaviour from them. For majority of them it could be a strong perceived benefit. (This blog was published in my LinkedIn Posts on 16th October 2017)
“Time is money”, a proverb which we hear often. If it’s true then all individuals on earth are equal as each one of us get 24 hours per day, however the value of those 24 hours will be different for everyone. Take case where an article around two year ago calculated Bill Gates earning at $ 0.9 million per hour. I often come across people who find “Time management” as their biggest challenge. A one-liner gag is doing round on social media which have deep implications. It says, Time is precious, do not waste it, unless it is “others” and not “yours” – Issued in public interest by leading social media and messaging apps. The proverb and the sarcasm in the gag point towards a fact that while most people plan their schedules, but usually they (schedules) are ruined by “others”. With power distance in country like India, it is common for superiors to barge into schedule of others with unplanned meetings, discussions and con-calls. However one need to remember that if time is money then while doing rounds of unplanned meeting and discussion with their subordinates they are actually sharing their wealth (time) with others, which has higher worth based on their earning potential per day. It is equally applicable to peers and colleagues who find several occasions and opportunities to eat up other time. So, while we plan our activities to manage “our time”, we also need to be sensitive while seeking “time” from others…. Recently the country has undergone the polls in 5 states including the gate to power in politics i.e. UP. Below are the 5 key learning for us from the outcome…
1.SP leadership eulogised their own work in UP while SAD suffered a setback due to bad performance >> Brand Promise and Brand Performance are critical for sustainability. 2.Poll results were not in sync with Opinion Polls. When forced to give you opinion, people may project a differenct picture >> Most customers will never give any hint before defecting to other brand; we need to have insights on what's happening in their life. 3.BSP was harping on their traditional vote bank, however the equation changed. In key state of UP, BJP first protected their base in seats they won in Lok Sabha while trying to snatch a victory in others >> An organisation needs to protect their core segments before targeting other segments. 4.While other parties opposed and projected demonetisation as wrong step, people verdict was in its favour (considering it as a right move) >> Understand what your customer values; respect it and be on customer’s side. 5.All parties projected a bad image of each other during prepoll rallies, speeches and made all attempts to seize every opportunity to downplay others >> Your brand can't become No 1 by just degrading competition brand. It needs to have its own brand ethos for a strong foundation. The State of B2C e-Commerce Have we ignored customers or overvalued markets? E-commerce firms are going through a rough phase of their business cycle. Falling valuation, manpower spurning, bootstrapping and revisiting business models as now talk-of-the-industry.
India has 5th largest start-up ecosystem in the world with 10000+ start-ups (in tech start-up we rank 3rd globally) and industry is an outcome of it. As per Sector Outlook report by Innoven Capital, 11% of respondents feel the sector is overhyped compared to 1% who still feels it is under-hyped. Does stats and spends reflect market potential? In Sep’16, India has overtaken US to become worlds’ second largest internet market with 333 million users. Around same time we became the 2nd largest smartphone market in the world with 260 million mobile broadband subs. These stats reflect huge market potential, but then where is the mismatch? While the smartphone subs make only one-fourth of the total mobile subscription in the country, we need to factor in multiple connection along with smartphone held by young kids and housewives who may or may not have spending power as individuals. The experience of those customers who can afford is also not good as we can’t ignore the fact that we rank 105th (improved marginally from 114) in terms of average internet speeds globally at 4.1 Mbps, among lowest in Asia-Pacific as per Akamai. The growth was witnessed with heavy ATL promotions by leading e-commerce players focussing on building brand and customer base. Front pages of all leading newspapers were splashed with round of festivals celebrated by e-commerce firms irrespective of actual festival apart from burning prime time in television media. Outdoor were screaming the rise of new B2C players in other business spaces. Raining discounts brought more customers; purchases from remote towns like Agartala in Tripura to Tier II towns of Rajkot in Gujarat raised hopes of the sector. (Mis) Understanding Customer While everyone focussed on acquisition and burnt money on subscriber acquisition, we ignored the powerful indicators and behaviour demonstrated by customers despite digital medium equipped with world-class business analytics which offer better insights into customer behaviour compared to traditional retail. “Free” is a powerful world. Dan Ariely in his book Predictably Irrational have described the power of Free with Zero Price Effect which says when a product is advertised as ‘Free’, consumers perceive it as intrinsically more valuable. Jio became the world’s fastest customer acquisition machinery with 100 million customers in 170 days realising the power of the word “Free”. Globally 30% of apps downloaded from appstore are paid while in India this may be as low as 10-12%. In-app purchases volumes are dismal. The gadget which we call Smartphone serves as a medium of entertainment (music, gaming, chat) more than utility to enhance productivity for Indian consumers. The inclination is to keep the operating costs low with free content downloads including illegal songs and movies, limited in-app purchases in games and even downloading content in free networks (Wi-Fi) with free GB’s loaded by telcos during current data price war. Today’s e-commerce or B2C firms either bring aggregators through apps creating a customer comfort or bring physical store offerings online. The need of the hour is to create something meaningful with utility beyond discounting (price game). The consumers once feel value will pay. Education, FinTech and Healthcare are sectors apt for it. Apart from customer acquisition they need to find ways and means to broaden the customer base through educative initiatives including BTL activities which shall not only be restricted to metros but should include tier II and tier III towns. It will help to create a bigger and sustainable market place. Even the market place in these cities will not be confined to the people at the top of pyramid but will include the ones at bottom where potential of country like India lies. The industry seems to be standing at the crossroads. Even if it could have grossly overlooked the consumers behaviour; inflated their hopes with discounted pricing or over-estimated the market potential, the industry need to carry on as digital is the future and they have a greater role to play on. I-See-I-See-I Illusion: “I” is not about "me" but about knowing "myself" "Jab main chotta baccha tha.” Do you recall this jingle? People grown up during the days of limited media exposure, typically 80's would be able to recall it. But the context is not about the jingle, it’s from an interesting stream: behavioural sciences.
Now come back to a regular office scene and I am confident you would have also come across one. A supervisor (subtle term to replace the fearful word "Boss”) screaming at his subordinate about how efficient, smart, productive etc. etc. he was when he was of his (supervisor's) age and role. This is what I call as I-See-I-See-I Illusion (Note, It has nothing to do with the banking giant). It’s human psyche to believe that they perfect in all means thus discounting their negatives by a factor of “n”. They see themselves (therefore illusion) as an ideal role model for society, organisation and country without even knowing a zilch about themselves. First, introspect your “I” claims in the context of time. If someone tells me that he used to travel from Brookfield to Outer ring road in Bangalore (my work travel route) in 15 min during his time, I can straight-forwardly ask him to repeat that feat today. I am confident Bangalore traffic will give an opportunity to him to reconsider his claim. It will also be applicable to all those learned gentlemen who claim to excel at the age of their reportees or peers (though there may be some exception here too). The concept of time will mellow down some of your claims about “I”. If these claims pass through the litmus test of time, they will be more relevant and plausible to others. Secondly, Use the “I” concept to understand self. In an article by leading poet and advertising icon, Prasoon Joshi, many marketers still refer to customer as "they" rather than us which alienate them from being part of the segments they target (mostly summarized as “Common Man”). It deprives them of visualising their own behaviour which eventually restrict learning. Individuals who know themselves are happier than others as they are aware of their own acts and decision. They make themselves more accountable of the results which are outcome of these acts. To close, one great lines from Shifu, the master of Po, the Panda (from movie Kung-Fu Panda) “If you only do what you can do, you’ll never be better than what you are. You don’t even know who you are!” Loyalty is not build by reward points or incentives, but by a strong foundation of serving the basic need and expectation of a customer from your product or services A friend of my recalled his summer training experience which bolstered my belief around the enigma called “Loyalty”. The pal had shortlisted a project to understand the loyalty in soft drinks selection among consumer. A simple question asked by his project guide left him speechless. During a hot summer a retailer offers a customer you to choose between a Diet Coke or chilled Pepsi, which one would you select? Loyalty has been an integral buzzword in all functions of business right from Human Resources vouching for employee loyalty to customer service department seeking to retain a one. The revenue custodian marketing looks not only for retention but also a better share of her wallet. Loyalty is critical for organizations’ success as it symbiotic and rewarding proposition for both parties. In the customer centric context we have been taught a basic equation that “It costs five times more to acquire a customer than to retain a customer”. For many organizations, loyalty is limited to reward points or incentives used as a carrot to ensure customer stays and provides steady revenue stream. During my weekend grocery shopping, I observed a lady with stack of loyalty cards of all supermarkets ranging from Payback (Future Group) to Star Bazaar Rewards and from Reliance Select to Landmark rewards along with single brand loyalty cards. In this situation, the loyalty is overshadowed by the zest to “extract and encash” the value of every paisa spends on these departmental stores. But definitely this is not “Loyalty” (still some stores may be happy over her visit frequency and average spend per visit to the store) It has been observed that customers does not have any explicit reasons for using a product or service but customers have valid reasons for ending relationship with a service provider or product. The customer serving costs are spiraling, brands are becoming commodity and the switching cost and effort for a customer are becoming low which aggravates the task to make her loyal. Creating a loyalty for all can be tricky and costly proposition. It needs empowerment and investment at multi-layers of customer interfacing layers. Along with it, different customers have different expectations and many often leave you (red faced) without giving warning signals as the switching costs are low. Technology has also enabled her not only to compare your services but also provided her a medium to vent out her anger in different social forums. While rewards may not actually retain customers, serving at par of their expectations may help you so as they do not turn disloyal to your services. As basics, we marketers need to understand and evaluate the thin line of functionality and utilitarianism of the product and the cost paid by her. Higher the gap more is the trouble. With this, serve the customer with a bare minimum (floor) benchmark of her expectations and watermark levels (term used by wealth managers to ensure returns to HNI’s) created by your sales pitch claims or marketing activities at any given point of time. The right return for gaining the loyalty is to invest in right infrastructure, technology and manpower to enhance her experience to make the moment of truth a wow experience as you may not be able to create a loyalty akin of cult brands like Apple, Harley, Disney, Ritz Carlton but you can definitely prevent her to be disloyal with a limited resources. In case if you are planning for a loyalty scheme I suggest you to first check the basics (foundation) on which the castle of loyalty is to be built. (c) Sunil Singh Rana, 2016 At the end of every appraisal cycle, one thing which haunts the employee is not the discussion with his manager, it's a curve called as "Bell Curve" Refer wikipedia, on the origins of "Dead Bell", it says the use of dead bell was with a belief that it was rung to keep evil spirits away. Mohit (fictional name) was one of average performer in his organization and he was well aware of the fact. He remained average performer, till the time the bell which was supposed to keep evil spirits brought ill-luck to him. He was rated as poor performer, courtesy, Bell Curve.
The Bell curve which is nothing but the graphical representation of normal distribution. A bell curve is a graph which depicts a normal distribution of variables, in which most values cluster around a mean, while outliers can be found above and below the mean. The tool have been intensely used by organization for annual appraisals of employees. In laymen terms from HR perspective, you will have few outliers whether positive or negative in equal value. So your overachievers will be more or less equal to non-performers while the rest herd will follow the middle path. The blind folded HR Heads never debated on its relevance. It’s not their fault as it falls under a management practice called Best Practices. As GE, one of the most admired company did it, the other followed it religiously. An Harvard Business Review article in 2012 attributed Microsoft's “lost decade“ to the rigid implementation of the bell curve that incentivized engineers and developers to compete with each other than to collaborate, and to curry favour with managers. Leading consulting firm KPMG on a pilot basis shifted from this approach from April 1, 2015. As per Shalini Pillay, head of people, performance and culture at KPMG in India, it will help dismantle the artificial barriers imposed by the bell curve and take away the internal competition between employees, thus encouraging qualitative discussions on performance. Other organization like Cisco, Adobe, Infosys have also moved out of the practice. If the logic says that 2% of your employees are poor, then the big question to debate is why they were hired?, Who was responsible for their growth and skill gap or performance gaps? An individual joins an organization to make a career and to grow. His skill gap need should be addressed with regular consultive session with regular feedback and on-the-job training rather than waiting for the annual appraisal cycle to push and make him or her realize where they stand among their peers. It may not be true that an employee sitting on the one end of the curve with non-performers can’t be productive in any organization provided we force to brand them. With more and more organisations dumping it, we sure will see the death of "Bell Curve" which has haunted many. (c) Sunil Singh Rana |
A working professional with 19+ years of experience in Sales, Marketing, Strategy and Operations, I am an avid reader and quizzer.
My areas of interest are Business Strategy, Marketing, Customer Management and Digital Media. With my blogger mission as "Learn, Think and Share", I would love to share my thoughts on business strategy, leadership, management, marketing and business quizzing. If my blogs help you out in your professional growth or my quizzes provides a perfect match of infotainment, then I will consider my little attempt as rewarding. - Sunil Singh Rana ABOUT AUTHORArchives
December 2018
Categories |