Notes on pricing
I was reading a column by researcher James Koppenhaver in the October 7 issue of SuperNews (you can find the original article here), and I was reminded of some notes I made recently for myself after losing a prospect project due to price:
I wrote:
Price is the wrong part of the equation to focus on. If one bases his marketing and communications decisions on price, he should do either or both of these things:
1. If price is the primary factor, cut out marketing or advertising altogether. Just save the money. Maybe you're not selling quality in the first place and are better off in the commodity category.
2. Change resources - all types of resources - ever more frequently. After all, the traditional advertising agency or creative resource builds her model on giving you a lot up front, banking on downstream revenues. So keep firing the old and hiring new "marketing partners" and get more for free.
Examples worthy of discussion:
- Vonage vs. Cell phones. The Vonage VoIP model forces no contracts, no minimums. Their logic, I think, is the product is good enough, you'll stay around 'til there's something better, in which case, they'd better have it. Cell phones on the other hand ... can you imagine not having to sign a 12- or 24-month contract? And don't you think the price you pay will be lower later? That's a contract based on the wrong reasons.
- We used to work with Club Car, the golf car company. They worked hard to win over customers who had E-Z-GO fleets. And E-Z-GO did the same to Club Car. They'd be most aggressive on pricing when they could "steal" a customer from the competition. Time was, they could make up for their pain winning the first time by keeping the new customer next time. This approach worked 'til the customer began to think of golf cars as a commoditized category, that one brand was as good as the other. So they began just ping-ponging from one brand of fleet to another...at increasingly aggressive prices.
Moral to the story:
If you're interested in saving money on your marketing, just save the money. Don't spend at all. Your costs will be lower, your margins better.
But if you're investing in growth, in revenues, your margins, don't think in terms of cost; think in terms of yield. How can we make marketing an asset instead of an expense?
I wrote:
Price is the wrong part of the equation to focus on. If one bases his marketing and communications decisions on price, he should do either or both of these things:
1. If price is the primary factor, cut out marketing or advertising altogether. Just save the money. Maybe you're not selling quality in the first place and are better off in the commodity category.
2. Change resources - all types of resources - ever more frequently. After all, the traditional advertising agency or creative resource builds her model on giving you a lot up front, banking on downstream revenues. So keep firing the old and hiring new "marketing partners" and get more for free.
Examples worthy of discussion:
- Vonage vs. Cell phones. The Vonage VoIP model forces no contracts, no minimums. Their logic, I think, is the product is good enough, you'll stay around 'til there's something better, in which case, they'd better have it. Cell phones on the other hand ... can you imagine not having to sign a 12- or 24-month contract? And don't you think the price you pay will be lower later? That's a contract based on the wrong reasons.
- We used to work with Club Car, the golf car company. They worked hard to win over customers who had E-Z-GO fleets. And E-Z-GO did the same to Club Car. They'd be most aggressive on pricing when they could "steal" a customer from the competition. Time was, they could make up for their pain winning the first time by keeping the new customer next time. This approach worked 'til the customer began to think of golf cars as a commoditized category, that one brand was as good as the other. So they began just ping-ponging from one brand of fleet to another...at increasingly aggressive prices.
Moral to the story:
If you're interested in saving money on your marketing, just save the money. Don't spend at all. Your costs will be lower, your margins better.
But if you're investing in growth, in revenues, your margins, don't think in terms of cost; think in terms of yield. How can we make marketing an asset instead of an expense?
posted by Mark Burris - BURRIS at 10/16/2005 11:47:00 AM
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