Wednesday, December 18, 2013

Don’t Lose on Loss Leaders

By Laura Iles - Sr. Consultant, Integrated Insight

As I watch the ads this season, I’m reminded that loss leader strategies are a favorite holiday pricing tactic of the various establishments competing for our dollars. When used appropriately, discounting below cost can be a useful strategy for pulling repeat customers in the door, driving incremental sales, and establishing new clients. But this strategy is not appropriate for every business, nor for every occasion. Below, we’ll look at some of the critical factors to consider in determining whether this particular pricing tactic will achieve your goals.

Attracting the Right Customers
The first question is whether a loss leader strategy will attract the kind of customers that will remain with the company long term. While steep discounts can entice new customers with a low-risk chance to sample offerings, there is always the chance of drawing individuals who cannot afford to pay full price for the products / services once the offer is concluded, and have no intention of making incremental purchases on that first visit.

This is where market research becomes critical. Understanding existing customers and their motivations will enable the firm to decide whether a discount message of this level will be attractive. Price is not the only loyalty driver – Nielsen research demonstrates that globally, 59% of customers would be most enticed to switch brands, service providers, or retailers for an attribute other than price. Clearly, a dramatic savings message is not the only way to attract customers.

Maintaining the Customer Experience
Prior to execution, consider whether resources exist to manage the volume increases. Depending on how valuable the offer is perceived to be, the deal may end up attracting more customers than the firm is prepared to handle. A sudden spike in online traffic can crash servers and attendance increases may overwhelm stores. Consider whether a more modest savings message would be effective, while helping to preserve the customer experience.

Specific limits around the campaign will help to prevent a devaluation of what current customers have already purchased. Loss leaders for specific times (Black Friday) or specific subsets of customers (local residents, particular email lists, etc.) will help to prevent a general weakening of your brand image, as well as shielding the firm from widespread losses if the strategy does not produce incremental sales. As time passes, it is useful to periodically review limitations for any ongoing loss leaders. There is always the hazard of training your customers to wait for discounts if such messages are provided too frequently.

Think long term – does this tactic support the firm’s overall image? The danger with any loss leader strategy is the risk of creating a “discount” image. Many businesses utilize this approach successfully, just make sure it’s the most appropriate one for the company. Fencing the offers (e.g. limited time only, a subset of individuals only) will help to mitigate the discount appearance and retain value for the firm.

Create an Exit Strategy
As with any new strategic plan, be willing to utilize an exit strategy if the loss leader tactic is not creating the anticipated level of success. Develop guidelines around targets and time frames before implementation and establish metrics to use in evaluating success. You might cross-track elasticities to measure the impact a loss leader has on sales of additional items, as well as establish a process for tracking new customer retention. Discount messaging is an easy way to drive immediate sales, but determining whether it creates long-term profitability requires tracking the results.

Using a loss leader to drive penetration can be powerful, but it’s not the only pricing tactic available. Make sure it truly aligns with the company’s strategy and the customer’s needs before deciding which course to pursue. 

Tuesday, December 10, 2013

Inspiration in the Office

By Candy Parks - Director, Integrated Insight

There are people much smarter than me that have built a body of research on the psychology of office design and the impact on retention and productivity.  If you doubt me, follow this link:

All I know is that I like colors, and colors make me happy and boost my energy.  We read about this in medicine all the time – people focus their thoughts and their attitude and those positive thoughts have healing powers.  I believe office supplies have productivity powers!

Most women love to spend hours shopping for shoes at Nordstrom.  I, on the other hand, get my retail therapy in Office Depot.  Maybe because in one of my first jobs, I had to get office supplies from someone we’ll call Helga.  If I checked her resume, I think I’d find that Helga managed inventory for the Nazi forces.

If you needed pens, she informed you that black ball points were all you needed.  And yellow post-it notes fit the bill – the other colors were simply frivolous.  And according to Helga, the only binders fit for use were 2” and black!  Helga also thought colored file folders were from the devil.

Poor Helga would CROAK if she could see my office today.  Luckily, I now work in an environment where my leaders say, ‘Get what you need to do your job.’  Sooooooo, I have 3 ring binders in polka dots, paisleys, and bright stripes.  I put my most challenging projects in my favorite binders, and psychologically, that perks me up when I have to reach for that binder.  I have post it notes in every size and color and I use them all.  I have flair pens in 12 colors, and I have REAL pencils – not mechanical pencils.  Of course, my pencils are from Vera Bradley and are beautiful, but I use them happily and admire them as I do so.  I have note-taking books in bright yellow, pink, and lime green.  And my bookshelves are lined with colorful cloth baskets to store all my fun supplies.  When a project is done, I transfer it to a boring folder – not manila, but a boring solid color and put it away.  But while something is active, it LOOKS active on my desk or on my shelf.  And I feel active and energized while I work on it. 

Of course, there is a time and a place for everything.  No, I’m not going to take my bright polka dot binder to a corporate meeting – I’ll transfer to basic black – but I WILL take my purple flair pen.  If you’re a leader, please don’t underestimate the simple pleasures of office supplies and their potential impact on employee satisfaction and productivity.  It’s so much cheaper than redesigning your office and buying new furniture!

Tuesday, December 3, 2013

Pricing 101: Taking a Page from Pawn Stars

By Kirsten Snyder - Director, Integrated Insight

If you haven’t checked out the show Pawn Stars on the History channel, then you are really missing out.  The show follows about 3 or 4 items that people bring into the Gold and Silver Pawn shop in Las Vegas.  The items range from old military weapons to pop culture collectibles.  Think of it as Antique Roadshow, only at a pawn shop.  Besides the history you learn from the experts on the show, it teaches important lessons in pricing and maximizing profit.

Understand the price customers are willing to pay.
The pawn shop understands that they need to buy an item at the right price in order to be able to mark it up to make a profit.  In order to buy at the right price, understanding how much an end customer is willing to pay is critical.  Not knowing the price the market will bear runs the risk of overpaying and being forced to sell at a loss.  It can also lead to a slower than expected sales pace.

Understand the size of the market interested in the item.
Another important factor to consider when buying a product is how quickly the item will sell, otherwise known as carrying costs.  The pawn shop can estimate this by understanding how many people are interested in, or able to afford a certain item.  For example, if they buy a first edition Mark Twain Novel worth $10,000, management first has to project how many Mark Twain collectors are in the market and willing to spend $10,000.  Carrying costs are important to consider given money tied up in inventory isn’t available for purchase of new items.

The best channel may not be your own.
The pawn shop may buy an item that’s too good to pass up, but if they need a specific audience to sell to, then the pawn shop may not be the best place for the sale to take place.  Some items may sell quickest and fetch the highest price through a different channel.  For example, the pawn shop purchased a car driven by Steve McQueen in his last movie, The Hunter.  Because this item has a very specific audience, they considered how much profit could be made if they sold it through an auction, in spite of the auction fees.  The pawn shop knew they would have the best audience willing to pay the most money through this channel, as opposed to their own store.

The moral of the story, “Maximize profits by understanding your consumer.  Offer the right product, to the right customer, through the right channel, at the right time and price”.

Tuesday, November 26, 2013

Black Friday Frenzy or Cyber Monday Mania?

Shoppers are increasingly trading early morning ‘door-busting’ deals for the comfort of online shopping at home

By Sue O’Shea – Director, Integrated Insight

Are you a Black Friday Soldier, a Cyber Monday Surfer, or both?  If all the indicators are accurate, holiday shoppers seem, more and more, to prefer shopping for deals from the comfort of home rather than braving the early hours and frenzy of Black Friday. 

The internet has certainly transformed the shopping experience, and the long held post-Thanksgiving tradition of arriving at 4 a.m. for “door-busting” deals might be its next casualty.  Nielsen recently conducted research that indicated 85 percent of consumers plan on skipping the stores on Black Friday this year. Instead, nearly half of consumers (46%) stated that they will shop online on Cyber Monday, compared with 30 percent in 2012, a significant 16-point increase.  The research also stated that the percent of respondents planning to shop in physical stores this Black Friday is down 4 points from 2012. This is part of a four-year downward trend, where consumers report a declining interest in shopping the Friday after Thanksgiving.

ComScore reported that Americans spent $4.3 billion online from Thanksgiving through Cyber Monday in 2012, with double-digit increases on every day compared with 2011. On Black Friday itself, online sales rose 28% while in-store sales dropped 1.8%. Clearly, consumers increasingly favor online deals over those in stores, especially since they can find the same items online at the same price and with free shipping.  Internet shopping also gives the consumer an easier way to comparison shop without having to drive all over town.

Despite the comfort and ease of internet shopping, there is a certain segment of shopper who thrives on the thrill of the chase and competitive shopping on Black Friday.  I bet some are camping out in front of Best Buy already, so the Black Friday tradition seems safe for now. These intrepid souls may be decreasing in numbers but they do make for a good story on a slow news day.

More power to them, but I will be at home clicking away with a cup of Christmas cheer!

Wednesday, November 20, 2013

Christmas Creep

It's not your imagination - Christmas season started early this year

By Sue O’Shea - Director, Integrated Insight
The local easy listening station in Los Angeles (KOST 103.5) started playing Christmas tunes 24 hours a day on November 15, almost 2 weeks before Thanksgiving!   Last year, the station started the holiday music programming on Thanksgiving Day.  According to the Consumerist this early start can have a negative emotional impact on consumers, in part, by taking the specialness out of the holiday. 

But while this kind of “Christmas Creep” may make people grumpy, the station’s Christmas music programming has proven successful. Last year the holiday ratings boost for KOST was 10.2% audience share, crushing competitors, including No. 2 KIIS-FM which came in at 5.5. Despite any negative repercussions, this year the Christmas hype is being rolled out earlier than ever – and there are strategic reasons why according to Matt Brownell in his Daily Finance retail article:
  • No Presidential Election. This year, retailers had free rein to take over the airwaves in the fall, and they took advantage.
  • A Late Black Friday.  This means a shortened “holiday season” and retailers are not going to wait until Nov. 29th to roll out the promotional efforts.  
  • Early Hanukkah.  The first night of the Hanukkah falls on the evening before Thanksgiving.
  • More Focus on Low-Income Shoppers. Walmart officially kicked off the holiday season back in August, when it announced its holiday layaway program. Meanwhile, Kmart aired the first official holiday commercial of the season - an ad for its layaway program.  The nature of layaway means retailers have to begin talking about the program early.
  • And finally, Because It Works.  Even though some may react poorly, the displays and music still get people spending, and at higher rates than they would if stores opted to wait. According to the National Retail Federation, 2012 saw an immensely profitable holiday season as stores experienced an overall sales increase of 3.5 percent, or $579.5 billion more in sales. The NRF predicts that this year’s holiday sales will increase even more. 
Maybe the Christmas music on the radio is helping to motivate early and additional spending, but I have vowed not to pay any attention to the Holidays until the day after Thanksgiving.

Thursday, November 14, 2013

Continuous Improvement Through Customer Feedback

By Laura Iles - Sr. Consultant, Integrated Insight

Customer feedback is one of the most valuable tools an organization has – be it compliments or complaints, this window into the client’s mind is invaluable. But, to use it effectively, a company’s structure and systems need to be designed to support continuous improvement based on this customer feedback. It’s a multi-step process, replete with opportunities fail in proper execution.

Collecting the feedback
AT&T does a superb job of collecting customer feedback through text messages. After each interaction with an AT&T representative, I receive a series of text messages asking me to rate various portions of the transaction, and then submit any comments I may have. Other firms operate through phone calls or emails – the appropriate medium depends on your customers.

Conversely, my doctor’s office recently missed a perfect opportunity to solicit my feedback. When the office called to ask me to schedule an appointment, I informed them that I was switching providers. “Ok. We’ll make a note on your chart.”

This was an overlooked opportunity for their office to gather valuable information about what is driving clients away. It’s likely this employee was never trained in collecting feedback.  Her responsibilities for the most part lie elsewhere and her priority was to execute on those other, more pressing matters. Training every employee who interacts with customers to solicit feedback when they see the potential to gather valuable information should be part of the program.

Startups are often excellent at this, proactively soliciting feedback from those who test the first few generations of product releases. These customers feel valued and, even though the product isn’t perfect, they are engaged and become invested in making it better. Those who send feedback, however negative, have the potential to become your most ardent supporters and ambassadors if you engage with them.

In the process of collecting this information, there will occasionally be those high-alert items that require immediate assistance. They are different for each firm, but we all have certain situations that have the potential to damage our brand or cost us our best customers.

Do your employees soliciting feedback know what these items are? Have they been trained to recognize a priority situation and escalate it appropriately?

I recently watched a customer complaint on Twitter spiral out of control – in front of the customer’s 2.5M followers – because the employee on the social media front lines didn’t recognize an urgent customer-care situation.

The result? The firm publicly lost a loyalty-customer and the customer in turn received an invitation from a competitor, complete with the promise of better service.  In this very public day and age, training your service members to recognize and respond appropriately to priority situations is an absolutely critical step in the feedback process.

Classification and Execution
At specific intervals, it’s important to stop collecting data and turn your focus to execution. Post data-collection classification and action is a particularly challenging piece of the process to manage.

Often, firms don’t have systems in place to support thoughtful use of the insights that have been compiled. Further, not every piece of feedback requires action. Knowing how to separate the wheat from the chaff and execute on the most important items is crucial.

Ensure there are specific procedures for review in place, as well as working relationships with impacted teams. Create an appropriate forum for discussion and solicit buy-in from those who will be required to execute on the actionable items. Don’t allow your firm to be caught in the trap of collecting data while never acting on it.

Follow Up (As Applicable)  
This last step will need to be taken on a case-by-case basis. Certainly the majority of the feedback your firm receives may not require any personalized follow up. But when utilized, it can absolutely cement customer loyalty.

A brief follow-up to ensure the concern was addressed, or to say thank you for positive feedback, does wonders for reassuring your customers that you care about their experience. And if their concern hasn’t been resolved, giving them a quick option to connect to a live person for further help can allay much of their frustration. General follow ups, such as blog posts, are a great way to let consumers know that your team is working on addressing their feedback.

Companies aren’t required to be perfect. We’re all human; we’ve made our fair share of mistakes and we’ve worked with systems that don’t always perform perfectly. Most of your customers understand, and are willing to make allowances – so long as they feel their critical concerns are heard. Listen to your customers, let them know you take their feedback seriously, and you’ll create a fanatically loyal following.

Monday, November 4, 2013

United Airlines - Friendly Skies?

A (not so) Flyer Friendly Experience

By Candy Parks - Director, Integrated Insight

I love George Gershwin’s Rhapsody In Blue.  I bet he’s bluer than blue that this tune is the hallmark theme probably best recognized as the tag associated with United Airlines.  Way back when - they wanted us to fly the friendly skies, and now they are trying with great fervor to convince us they are flyer-friendly.  I think they need to keep trying.

What I experienced on my recent travel was definitely not a friendly experience.  I had to travel from Orlando to Washington to Munich to Bari, Italy in one fell swoop – two legs on United and one leg on Lufthansa –both members of the Star Alliance. My first clue that this would not be United’s finest moment came when I checked in at Orlando.  I was told by the United agent that he was unable to print my Lufthansa boarding pass and I would need to check in for that flight in Munich.  When I looked confused, he explained ‘that’s not United.’  Why tout the alliance to the public if it’s not easier or better for the customer?

Given that I knew I was facing a daunting travel day, I had happily paid the upgrade for extra legroom on my United flights.  Imagine my dismay when I found out I was in boarding group FIVE - the very last group called to board. Even after paying for premium seating, I had to watch four groups board ahead of me, loaded with carry-on luggage.  I’m betting the majority of those folks didn’t pay for early boarding – yet another ‘friendly’ service provided by United – for a fee.  Spoiled by JetBlue, I expected the hundred and thirty something dollar premium I paid would include priority boarding as well.

My flight to Bari was scheduled with Star Alliance partner Lufthansa and there was a reasonable two hour layover.  I first tried using the kiosk to print my remaining boarding pass, but was told it couldn’t find my travel arrangements and I would need to go to the counter.  Unfortunately, the ticket agent could not find my reservation either, commenting, ‘Oh, this was through United.  That explains it.’  He punched a bunch of numbers, and then some more and finally called a supervisor.  It was explained that because the tickets originated with United, they weren’t recognized in the Lufthansa system and they had to CALL United to sort it out.  Not check online, CALL.  Perhaps because it was 2:00 am in the U.S. and the call center was closed, or maybe the agents were simply busy with other calls, but Lufthansa was never able to reach United by phone or online.  By contrast, while working on a ship in Greece,  my boss got a call from her father in Pennsylvania.  In Greece.  On a ship.  In an elevator.  But United can’t be reached by phone by a Star Alliance partner to work out a paid ticket issue with a flight they booked and which was about to board? Why was there a need for a call?  Why was the itinerary number issued by United not recognized in the Lufthansa system if they are part of a Star Alliance?  And if they know their numbers differ, why don’t they have a fast and efficient way to handle this – especially in situations involving international travel on a connecting flight they scheduled?  

Lufthansa simply ‘fixed the situation’ and issued me a boarding pass so I could make it through security in time to make my flight, but I had to hussle.  My Lufthansa experience was ‘flyer friendly."  Lufthansa is a STAR in my book.  For all I know, Lufthansa was at fault, but by that point I was more than happy to blame United.  In my mind, I was United’s customer – they booked the flight.  The fact that United, in my experience, dropped the ball not once but twice was all the evidence I needed that they were falling far short of flyer-friendly.  I can only laugh when I see their commercials.  Flyer-friendly?  Heck, even when you pay a bunch of fees, it’s a crap shoot as to whether or not you will get good service.  So, I say ‘flyer-friendly my foot.’

Monday, October 28, 2013

Three Steps to Avoid a Tricky Tweet

Lessons learned from poor customer service

By Kirsten Snyder - Director, Integrated Insight

We all have stories about terrible customer service.  Some industries, such as the airline industry, have a notoriously bad customer service reputation.  My experience was with a company in another dreaded industry...home warranties.  Generally, when something goes wrong with either my flight or my refrigerator, I have the same feeling of dread, expecting a terribly painful ordeal.  I recently had an awful experience with our home warranty company, but it didn’t have to be that way.  If the company had focused on only three things, it could have made the experience better.

Treat me like a valued customer.  Our home warranty company simply passed me off to a contractor who was supposed to solve my problem.  This is the typical process but unfortunately, they don’t follow up to make sure everything is going smoothly.  I am the home warranty company’s customer, but they don’t treat me that way.  They act like a broker rather than an advocate, which doesn’t make me feel like they value my business, and leads to my next point.

Proactively communicate with me.  After the initial meeting with the contractor, I went to the home warranty company to help expedite the process.  However, their solution was to continue to deal directly with the contractor, who kept telling me the part would be arriving in the “next shipment.”  After four weeks of no results from the contractor, my husband sent out a frustrated tweet.  The negative press caught the attention of the home warranty company, who promptly called.  This was the first communication I received from the home warranty company since my initial claim.  Had the home warranty company actually been involved in my claim, communicating with me and the contractor, we wouldn’t have resorted to taking our frustrations to Twitter.  The communication doesn’t have to immediately solve the problem, but even an email or phone call that says they are monitoring the claim, would have been a huge improvement, making me feel like a valued customer.

Give employees the tools to solve problems and encourage them to do so.  When the tweet prompted a phone call from the home warranty company after a month of radio silence, I was optimistic that they were finally going to advocate for my situation.  Unfortunately, the phone call began with, “Hi.  You recently posted something very negative on Twitter and I am calling to explain the situation.”  The representative proceeded to tell me what I already knew – the contractor had still not received the part.   She offered no solution to my problem, wasn’t prepared to offer a solution, and did it seem like she had any authority to do so.  Her job was to call and defend the home warranty company and prevent another “negative” tweet to my husband’s 130,000 followers.

If you have the staff to monitor and engage in social media, then use the opportunity to make the situation better.  Yes, people want to understand what’s happening, but most of the time what they really want is a solution.  In my case, I was well aware of the situation.  We took our problem to Twitter because neither the contractor nor our home warranty company was solving our problem.  We figured my husband’s large Twitter following would encourage the home warranty company to do something.   I wanted to hear, “We understand you have had a difficult and frustrating experience.  We have found a new contractor who has the part in stock and will be out tomorrow to install it.  I am so sorry for any inconvenience.” 

Communicating can go a long way in making customers feel valued in addition to turning a bad situation into a positive experience.

Thursday, October 24, 2013

Multitasking in the Workplace

Small steps to stronger productivity

By Laura Iles - Sr. Consultant, Integrated Insight

Study upon study has proven that multitasking is a myth.  According to the 2007 New York Times article “Slow Down, Brave Multitasker, and Don’t Read This in Traffic” we can’t really multitask, it makes us less efficient, and it’s costing businesses money every day.  MRI scans from the University of Michigan established that “even simple tasks can overwhelm the brain when we try to do several at once.”  Yet, the ‘culture of busy’ persists. It’s a rapid-fire switching between disparate tasks, scanning emails while hearing every 3rd word from the phone call we’re taking or browsing a document on your computer in a meeting, pausing long enough to glance at the presentation slides every so often.  Multitasking stops our brain from saving new information into short-term memory. If we can’t save the new information, we forget the take-aways and end up spending more time reviewing later to catch up on what we missed. In today’s business environment it’s a challenge to break free from this cycle with smart phones, laptops or tablets following us on lunch breaks and into meetings  with the expectation that we are always available.

Yet even small changes can still make a difference in concentration, stress levels and productivity. Be willing to start small, and gradually build on your success:

Try scheduling blocks of uninterrupted time for project work. This is by no means a new idea, but often hard to implement in a meaningful way given it is rare there is ever just one project needing your immediate attention.  As challenging as it may be, even 30 minutes a day of dedicated focus on a priority task will help significantly. Gloria Mark, a professor at the University of California, Irvine who studies multitasking in the workplace, states that after an interruption of a phone call or an email, “it can take some 23 minutes for a worker to return to the original task.”  Repeat throughout the day, for each employee, and that’s a staggering amount of lost productivity.  Blocking time on your calendar for project work, similar to blocking time for meetings, can help. The key is to remember that although you can’t single-task all the time, even 30 minutes of deep focus can be more productive than 2 hours filled with interruptions.

Take a true lunch break. Allowing yourself time to relax and recharge your brain can mean the difference between a focused, productive afternoon and one where you perform at a subpar level.   Choosing quality over quantity attempting to leave your desk and smart phone to enjoy the company of your lunch-mates or read a good book - whatever energizes you – can help.

Take the lead on device-free meetings. You won’t be able to take away everyone’s smart phone but it’s likely you can champion the cause in one meeting. As a presenter, it is disheartening when more than a few in the audience are looking down in their laps, paying more attention to the email conversation than your presentation.  Not to mention lost time when topics have to be re-visited to keep everyone up to speed. Established culture is powerful but over the long run, change is possible. Leading by example is a good start. 

Tuesday, October 15, 2013

The Millennials

Thinking differently about the workplace

By Sue O'Shea - Director, Integrated Insight

I am a Baby Boomer – albeit just barely – but still a boomer as I possess many of the traditional boomer traits.  As a former manager of a large staff I always worked hard to understand Generation X, their work style and what keeps them motivated and productive.  Now that the Millennials (those born between 1980 and 2000, approximately) are coming into the workplace, it’s time to understand who they are and what they want from work and from life.

According to a Pew Research Center study Millennials are generally confident, self-expressive, liberal, upbeat and open to change.  They are more ethnically and racially diverse than older adults. They’re less religious, less likely to have served in the military, and are on track to become the most educated generation in American history.  I have also heard them described as entitled, adverse to hard work and over-confident. TIME suggests in their May, 2013 article “rather than being inherently self-centered or overconfident, Millennials are just adapting quickly to a world undergoing rapid technological change. They’re optimistic, they’re confident and they’re pragmatic at a time when it can be difficult just to get by.”

The Millennials were children and young adults when they witnessed the horror of 9/11.  They were also hit hard by the recent Great Recession.  Just like our parents or grandparents who survived the Great Depression, the Millennials have been affected by these and other recent events.  One result is their attitude regarding money.  It’s a widely-held belief that Millennials are obsessed with money, but don’t mistake it for an obsession with getting rich.  PwC recently conducted one of the largest global generational studies  and found that Millennials want flexible hours and job development over salary in their ideal workplace.

The PwC survey also found:
  •  Many Millennial employees are largely unconvinced that excessive work demands are worth the sacrifices to their personal life, even with the promise of substantial compensation later on.
  • A significant number of Millennial employees want greater flexibility at work, and would be willing to give up pay and delay promotions in order to get it.
  • Millennials do not believe that productivity should be measured by the number of hours worked at the office, but by the output of the work performed.  They view work as a “thing” and not a “place.”
  • They value transparency especially as it relates to decisions about their careers, compensation and rewards.
  • They want to provide input on their work assignments and want and need the support of their supervisors.
  • They have grown up not expecting their organizations to meet all of their needs, including job security, and don’t see themselves working for one organization for their entire career.
  • Although Millennials have a natural aptitude for electronic forms of communication, email and social media platforms are not always their communication vehicles of choice, especially when it comes to discussions with their managers about their careers.  In these instances, they prefer face-to-face.
  • While the same basic drivers of retention exist for both Millennials and non-Millennials, their relative importance varies, with Millennials placing a greater emphasis on being supported and appreciated. 
Great food for thought on how the workplace should evolve, but remember that one size does not fit all.  Meeting all generational needs with personalized engagement will be critical for years to come. 

Tuesday, October 8, 2013

Effective Messaging

Are you providing relevant information, or just making noise?

By Laura Iles - Sr. Consultant, Integrated Insight

Lately I’ve been on a mission to reduce the influx of marketing in my inbox. Every company I interact with asks for my email and social media connections and phone number for texting and calling. I’m deluged with marketing campaigns and at this point, it’s just so much static to me.  Now I’m working to separate the wheat from the chaff, and not many firms make the cut.

So how do you make your message stand out against the background noise of your competitors?

Stay on topic.

There are other critical factors of course, but you’ll lose the game before you begin if your messaging is unfocused. I’m continually astonished at the number of campaigns that do not follow this rudimentary principle.

Your firm is in the business of providing a particular set of goods or services, and your communications should focus on providing information relevant to those goods or services. Your messages do not need to be all things to all people. The fastest way to lose the interest of your customers is to dilute your message with irrelevant information.

Case in point:
After a recent car service, I was signed up for the monthly email newsletter from the dealership. Thinking there might be a useful maintenance tip or a coupon inside, I opened the email – only to find the following headlines:
  •  Health Benefits of a Mediterranean Diet
  • Investing 101: Where to Begin
  • Great Accessories for Your Touch Screen

 A quick online search of previous newsletters revealed the following gems:
  • Why Your Body Needs Iron
  • Movies about Parenthood
  • 5 Great Superhero Video Games
  • Fresh Ideas for Organizing Your Closet

 Confused, I clicked through to the closet organization article.

“Pick a Saturday and devote it to your clothes closet... Gather what you don't wear and donate it to a charity.”
“Organize by type.”

This newsletter comes from a company that I pay to maintain my vehicle. It is unclear to me why I’m receiving articles on investing and healthy dieting and organizing my home.

Needless to say, I’ve since unsubscribed.

There were other articles of more relevance mixed in of course: New Vehicle Previews and Environmentally Friendly Maintenance Tips. But by then I’d lost interest. The newsletter was too cluttered with topics that were irrelevant and obvious space-fillers.

This firm would have done better to cut the extraneous and send a shorter newsletter, with a focused message. As consumers, we are all overwhelmed with emails, social media campaigns and advertising messages. To cut through the noise, your marketing offerings need to be concise and relevant.

Consumers agree to be on mailing lists because they want to hear what your businesses has to say about the product or services. Customer communications are not intended to be a newspaper, nor a magazine, nor an advice column. Diluting your message reduces your credibility.

Shorter is often better.  Provide information  of value, ideas that are relevant to your customers, and eliminate the superfluous – your target market is far more likely to listen.

Monday, September 30, 2013

You Had Me at Hello

The Power of Live Chat

By Candy Parks - Director, Integrated Insight

I’m just a Mom.  And this summer, I was a Mom getting ready to send her baby off to live and go to school in New York City.  When you are a Florida girl born and bred, and have lived your entire life in Florida, there is nothing quite as overwhelming as New York real estate.  Not much intimidates me, but the challenge of finding an apartment in Manhattan did. 

After searching and haunting a multitude of web sites, I figured out that it was ludicrous to try to do this without a broker.  I reached out to friends and family and learned that there are two key brokers for the New York rental market.   Feeling desperate and stressed, I reached out to both.

One rainy Sunday afternoon, I hit both web sites.  The first was pretty standard.  I had to register and fill out a profile outlining the details of what I was looking for.  (And it took 72 hours to get a response.)  And the other site was an answer to my desperate Mother’s prayer.  Within seconds of hitting the home page of, I was greeted by a live chat pop up.  Normally, I avoid these because I’m totally put off by the scripted and sanitized messages that any robot can deliver.  True to my state of desperation, I responded.  And to my surprise, I got a response back that told me I was interacting with a ‘real’ person with a personality.  I even made a comment to that effect, and low and behold, I discovered the person on the other end had a sense of humor to boot.

I was totally engaged.  And I became a fan.  My chat partner not only sent me links to valuable resources, he also expressed empathy saying, “I know as a parent you are really concerned about the safety of your son.”  I fell in love.  Every other person I had interacted with basically said, “What you are looking for doesn’t exist.”  Suddenly, I had someone who not only understood me, but was willing to help me – and felt confident he could do so!  He said he would have someone call me.  My heart sank.  I’d been through this before.  If you aren’t buying a house in the Hamptons, most New York brokers don’t want to deal with you – especially if you are looking for a ‘cheap’ apartment.

To my surprise, I got a call within an hour.  Suffice it to say that Brian is now a member of my family.  He held my hand, reassured me, and suffered my endless e-mails as we searched for the right apartment for my son.  We found it, and we found a friend in Brian.  And Brian found a loyal client for life.  My son may be a poor college student today, but he’s a New Yorker for life.  And Brian will forever be ‘his guy’ when it comes to finding apartments, and someday, that house in the Hamptons.

And it all started with a pop up.  “Hello, how can I help you today?”  And that pop up was followed by sincere, genuine, humorous, and empathetic interactions.  There is true power in live chat.  But the key is ‘live’ - not robotic.

Tuesday, September 24, 2013

Looking for a great return on investment?

Hire an Industrial Engineer

By Joni Newkirk - CEO, Integrated Insight

Many large companies such as UPS, Amazon, Ford and Disney rely on a pool of Industrial Engineers (IEs) to ensure complex systems work efficiently.  The term itself may lead you to believe the IE’s work is limited to industrial environments, but nothing could be further from the truth.  Today, IEs can be found in just about every industry and supporting many disciplines from operations to finance to information technology, and even sales and marketing.   While the Industrial Engineering or Operations Research discipline is typically perceived as a cost cutting measure, those who leverage IEs effectively know they can just as easily be the catalyst for improved revenue as well.   Ensuring decisions that impact costs do not negatively impact revenue and vice versa - understanding the impact of revenue decisions on costs -  is critical to maximizing profits. 

Industrial Engineers solve problems, often times problems you didn’t even know you had, but your customers may suffer through daily.  They have a knack for looking at a system or process and figuring out how it can be done better, typically leading to improved product or service quality, and profit.   Leveraging a skill set that includes statistics, human factors engineering, operations research, economics and management, IEs have the ability to view the organization holistically.  I have found them particularly effective in solving cross-functional or inter-divisional issues where the proverbial ball is often dropped and improvements are not only harder to identify, but often difficult to fix.  Not surprising, Industrial Engineers are often tapped for management and more than a few Fortune 500 companies have IEs in top executive positions including Mike Duke, CEO of Walmart and Tim Cook, CEO of Apple.

Leveraging the talent of an IE is advised for any organization interested in optimal use of resources.   With an average starting salary and benefits of $100K-$120K, an Industrial Engineer with strong management support and access to people and processes within an organization can easily pay back the investment multiple times year over year.  Small businesses as well as larger organizations would benefit from the versatile skills and breadth of experience IEs bring.  Consider the following:
  •  For a company like Six Flags that generates $1.07 billion in revenue with a 20% margin, a 1 percentage point improvement in margin is worth approximately $11M, or a 5% improvement in the bottom line.
  • In a company like FedEx, with $42 billion in revenue and where labor comprises almost 40% of total operating expenses, a 1% reduction in labor cost would be worth $161 million, an 8% increase in net income.
  •  A 50-unit chain restaurant with 200-seat venues and an $18 average check that can reduce table turn time and increase covers through improved ordering and kitchen processes, will yield $3 million in increased revenue for each minute of improvement.
Let your next hire be an Industrial Engineer.   Money-back guarantee.

Tuesday, September 17, 2013

Texting vs. Talking

Does face-to-face win the race?

By Sue O'Shea - Director, Integrated Insight

We are increasingly becoming a texting society, especially among teens and young adults. According to the Pew Research Center, texting is most prevalent among cell owners ages 18 to 29 — 97% of them use their mobile phones to send texts. The number is nearly as high (92%) for those ages 30 to 49, but falls off to 72% for those 50 to 64 and 34% for those over 65.   The amount of texts sent daily is staggering, six billion SMS (short message service) messages are sent every day in the United States, according to Forrester Research.  In the US, teenagers send an average of 60 texts a day. According to the Pew Internet research, texting is teens' most common form of communication, beating out phone conversations, social networks and old-fashioned face-to-face conversations. 

There are many case studies that show the power and success of texting as part of the mobile marketing mix.  However, texting before establishing a relationship seems to be jumping the gun a bit.  The Daily Egg blog shares a study from Leads 360 which found that text messages have as much as a 97% open rate, compared to as low as 15% for email, but the study also found that texting someone before starting to speak with and build a relationship with them significantly impacted conversion and lowered the chance of ever being able to convert that prospect again. 

So how does one open a dialog and forge a relationship?

There is no electronic replacement for the power of face to face communication that builds trust and transparency when meeting with a potential client.  Additionally, in-person communication provides feedback not available when communicating electronically –facial expressions, the tone and pitch of the voice, gestures displayed through body language and the physical distance between the communicators – all clues that provide opportunities to better understand the client and her wants and needs.  The ability to pick up on the non-verbal cues and respond appropriately are not learned and developed when the main mode of communication is texting and email. 

TIME magazine reported in the article We Never Talk Anymore: The Problem with Text Messaging  “Habitual texters may not only cheat their existing relationships, they can also limit their ability to form future ones since they don’t get to practice the art of interpreting nonverbal visual cues. As with real reading, the ability to comprehend subtlety and complexity comes only with time and a lot of experience. If you don’t adequately acquire those skills, moving out into the real world of real people can actually become quite scary”

The most successful communicators need the ability to talk and text and know the most appropriate times to use those skills.  When give-and-take is required, there is no better form of communication than putting down the smart phone and speaking to the person face to face.  If personal discussion is not an option, the telephone or Web conferencing is an acceptable second choice.     E-mail is great for scheduling and confirming meetings, phone is good for quick conversations that require two-way communication.  There is no replacement, however, for face-to-face personal conversations for any discussion requiring true dialog and relationship building.

Monday, September 9, 2013

Assuming Leadership in Goal-Setting

Beyond the SMART Goal

By Laura Iles - Sr. Consultant, Integrated Insight

Setting SMART goals is a cliché by now. The lure of a Specific, Measurable, Attainable, Relevant Goal  - so easy to check off when  accomplished! – is great.  As companies engage in annual goal-setting exercises for each employee, the SMART Goal is a simple method of providing direction and evaluating performance.

SMART is a good start, but it isn’t enough. For leaders setting goals on behalf of their team, or guiding employees in their own goal setting exercises, adding four other considerations to the mix will improve engagement and performance, in turn driving company success.

As goals are developed, it is tempting to fill our schedules with these delightfully quantifiable targets. Yet, time and energy are finite resources, and there will always be unanticipated challenges or opportunities requiring our attention.

We achieve success by defining only the most critical goals and sharpening our focus. By limiting the sheer quantity, you increase the likelihood of succeeding in the objectives you do set, while leaving space to address the unexpected.

Before defining the crucial goals for individual employees, it is imperative that executive leadership provide direction by performing the same task for the company as a whole. When management does not prioritize, employees and departments are faced with the impossible mission of “doing it all."

This scattershot approach leads to overwhelming and wasted efforts as teams diffuse their energy across too many objectives. Conversely, a firm that selects a few specific targets enhances the likelihood of success by allowing departments to concentrate their resources where they are most needed.

On a company-wide and an individual level, this exercise in clarity forces leaders to precisely define success. When you strip away the extraneous, what does success truly look like? People and companies both succeed by limiting their focus and executing on core competencies. Always ask yourself, is this the best use of time?

Respect the law of diminishing returns.
One approach to enhancing focus is to think about potential goals within the context of diminishing marginal returns. While a goal may be relevant, think strategically about its position within the context of the overarching business strategy. What is the relative importance to the business, and what opportunity costs will you incur as a result?

Given the length of time it will take your employee to achieve that goal, and the resources required to achieve and maintain that higher level of performance, ask yourself honestly:  is it worth it?

There comes a point when the returns from your improvements begin to diminish. If you consistently reach 97% customer satisfaction, the next 0.5% may drive less value than the resources your team will expend to achieve it.

We all know this intellectually, yet it’s so enticing to seize the opportunity to improve the values on the dashboard, rather than taking on the more useful, but less easily-quantified project. Bragging rights over continuous improvement aside, is this goal worth your team’s time, or is there a greater use for their focus?

If you don’t know the answer to that question, consider moving forward with a set date to review resource investment and assess relative benefits. Leave yourself open to letting go of goals that prove to embody diminishing marginal returns.   

Which brings us to the third criterion for goal setting:

Be Flexible
Flexibility includes opportunities for course corrections throughout the year, as well as recognizing accomplishments that occur outside the rigid framework of established goals.

Do you have a procedure in place for restructuring goals after the initial development process? If not, why not? Existing projects take longer than expected, new projects are brought to life, critical projects become less so as customers shift their goals. As a leader, it is your responsibility to guide your employees in reprioritizing their goals.

Further, if a previous objective is dropped, or an employee takes on an additional project, have you developed a method for acknowledging the work accomplished? Achievement of set goals is one method for evaluation, but strong leaders are flexible enough to recognize and reward achievements  attained outside of these goals.  To do otherwise is to risk creating a culture where employees are discouraged from going the extra mile.

Align Objectives
The fourth stumbling block is incompatibility of objectives from one individual or department to the next. 

When employee goals are in opposition to one another, progress stalls. If one department’s “success” depends primarily on cutting costs, the other department’s on improving performance, a project that spans the two departments is doomed to mediocrity at best.

Eventually a leader will step in and make an executive decision regarding the direction the project will take, but this often requires one team to sacrifice their goals. The company loses the benefits that true collaboration might have brought, the employees feel penalized for circumstances outside their control, and the relationship between departments sours.

Achieving an individual goal at the expense of a project’s success is a small-scale version of what happens when firms chase quarterly goals to appease shareholders, at the expense of the long-term health of the company.

As a leader, it is your responsibility to ensure you are not placing your employees in the position of choosing between a good performance review and doing what’s right for the company. Proactive communication to negotiate differences and ensure aligned objectives can mitigate these all too common situations.

Achieve Success
Goal setting is a critical method to cultivate focus and drive improvements, but simply setting SMART goals isn’t sufficient. For the employee and the company to thrive, individual goals must be considered within the broader context of the company culture and objectives, and flexible enough to respond to changing situations.

Tuesday, September 3, 2013

Riding the Analytics Horse to Profitability

…..or Following it With a Shovel?

By Scott Sanders - President, Integrated Insight

The ability to efficiently and effectively execute can differentiate a company from others, but so can analytics.  The cost to store and manipulate data is no longer cost prohibitive making analytics a potential competitive advantage for everyone.   Borrowing a quote from Rob Neyer, formerly with ESPN and now the National Baseball Editor for SB Nation, “In business, as in baseball, the question isn’t whether or not you’ll jump into analytics; the question is when.  Do you want to ride the analytics horse to profitability…or follow it with a shovel?”

Companies today have the ability to drive competitive strategies by integrating data-driven insights and analytics to make better business decisions and optimize business processes.  The power of competing on analytics is well documented:

1)   5% to 10% net income gains from a 1% increase in price realization
2) 2% to 10% revenue gain from revenue management science.
3) 10% to 30% increase in logistics efficiencies.
4) 10% to 15% increase in product line profits from product enancements or refinements.

My favorite time of the year is finally here – college football season - and in Florida that hopefully comes with a little cooler weather.   When I asked my sixteen year old son what he thought about analytic based decision making in sports he told me sports is BIG business ”… but it is simple dad.  With the right talent and a little luck you can win and winning sells tickets.”    While there is a lot of truth to what he says, sporting franchises have begun to embrace analytics to help drive profits.  Attendance has been on the decline due to a number of factors and franchises are leveraging data to extract the most value they can from their current customer base.   They know that a fan’s willingness to pay is different depending on who the team is playing.  Wins and losses matter and seeing franchise players can command a premium.  They know that suites can drive value.   They also have seen that the day of week influences demand and so can weather especially if the stadium is outdoors.  They are developing their data playbook, understanding the devil is in the details and fact based decisions help determine risk and benefits.

Given the secondary market for sports events tickets, understanding market pricing is paramount.   Many franchises are leveraging data and systems to move from variable to dynamic pricing and the results are promising, with both attendance increases and rate improvement.  Analytically approaching pricing based on demand has resulted in 30% increases in revenue in high demand situations and 5% to 10% increases in low demand situations1.  To put that into context, the Saint Louis Cardinals reported net revenues (revenues net of stadium revenues used to pay debt) of ~$239M and earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled ~$20M in 2012.  Gate receipts accounted for $108M in revenue.  At this level of revenue and EBITDA, assuming St Louis achieved low end of the range improvements earnings would improve by $5M to $10M or 25% to 50%.   Talk about happy owners or shareholders!

As I watched a replay of last year’s University of Florida and Florida State University football game this week it is clear.  Data insights and analytics are king, not only in optimizing ticket sales but winning football games.   The Seminoles have 3rd and goal on the Gators 2 yard line.    Understanding the probabilities of scoring when the ball is run up the middle verses the quarterback faking a hand-off and then running to the outside, could be the difference between winning and losing.  And according to my son WINNING games sells tickets – not to mention announcers would be so much smarter.

Smart decision making is key to competing in today’s marketplace.  Getting on the analytical horse can help put you at the top of your game.

1Forbes, Dynamic Pricing – The Future of Ticket Pricing in Sports; 1/6/2012

Monday, August 26, 2013

Protecting Revenue Streams

The 3 “Ps” of Queuing

By Michael Schweitzer - Director, Integrated Insight
and Joni Newkirk - CEO, Integrated Insight

Unless you are an Apple devotee, camped out and partying while you wait for the next technological gadget to be released at the stroke of dawn, it is unlikely that waiting in line is ever a pleasure.  Businesses know this and generally go to great lengths to reduce wait time or at least make them tolerable.  But some waits are more important than others and could inadvertently affect revenue more than you think.  Paying attention to the 3 “Ps” of queuing - don’t make people wait to park, pay, or pee – can positively affect your revenue.

Inability to find a place to park is the first opportunity to lose a customer completely.  Some will avoid your establishment entirely; others may have the mindset to “come back later” but never follow-through.  The more discretionary the product and the more substitutes available, the less likely a customer will feel the need to wait.  And while a potential customer may be willing to put up with difficult parking on the first visit, if the routine is repeated, they may never give you another chance.  Analyzing parking challenges is particularly important to businesses who share space.  If your parking lot is solely yours and the parking capacity matches the capacity of your establishment, not a problem.  But say for example, you operate a breakfast and lunch restaurant in a strip shopping center that also houses several other businesses, all with heavy traffic - your potential customers may find themselves circling the lot and eventually opting for another venue.

Similarly, big events such as sports, concerts, festivals, etc. often do not have dedicated parking sufficient for the event.  The cost of building a parking garage is often prohibitive, even considering the revenue stream from parking fees.  It then becomes a scramble for guests to find space in the surrounding area.  Some venues have successfully published “area parking” charts and many street smart entrepreneurs offer their lawns for rent.  But if a potential guest routinely finds parking a hassle, they may think twice about attending future events at the venue.

Eliminating or shortening lines for accepting payment can also improve revenue capture.   Much has been written about queuing theory and behaviors customers will exhibit when lines become too long.  Some will jockey to another line, others will renege and leave once they tire of waiting, and still others will balk immediately if the line is longer than they are willing to wait. Whether in-person or by phone, making a customer wait to pay is putting potential revenue at risk.  Holiday shopping is probably the best example.  Most customers are making discretionary purchases.  The longer the wait at check-out, the more opportunity a customer has to re-think a purchase they don’t really need.  Next time you are in a store with a long line, look around – it is likely you will see abandoned merchandise near the check out that people have decided is not worth standing in line for.  These are lost sales.  Grocery stores introduced Express Lanes to accommodate shoppers with just one or two items who are not willing to wait behind a shopper with a full cart.

Finally, long waits to use restroom facilities can be a detriment to purchase in a couple of ways.  Think about an event such as sports or a theater performance with a defined intermission.  If guests wait too long to use the restroom, they may not have time to grab a drink or a bite to eat as well.  Since restroom lines are notoriously longer for women than men, groups of women visiting together are particularly at risk.  Similarly, if guests are aware the wait is long for restroom facilities, they may consciously avoid drinking to ultimately avoid having to wait for the restroom.  Either way, the result is lost revenue.

By focusing on reducing wait times to Park, Pay and Pee, you will not only bring relief to your guests, but your revenue streams as well.

Monday, August 19, 2013

Email Frequency

Is there a “sweet spot” for the in-box?

By Sue O'Shea - Director, Integrated Insight

My email in-box is always full.  Some brands send me emails every day, some only once a week or less.  So when putting together my brand’s direct marketing strategy, much discussion takes place around the email calendar.  Specifically, what is the sweet spot for the in-box?

My thinking has always been, given the right conditions, once a day can be effective as long as fresh content and something interesting and relevant is being shared with subscribers.  If not, you’ll have a low open rate, high opt out rate and generally be thought of as being annoying or, worse, spamming.  Because I have always worked with ‘lean and mean’ teams, I have opted for once a week, measured the performance and adjusted as needed.

For additional insight I did some research and discovered the following three interesting perspectives on email frequency.

The marketing SaaS company located in Cambridge, MA has conducted and published research on frequency.  However they recommend testing to determine the optimal frequency because every brand’s campaign, goals and subscribers are unique.

The five recommended steps are:
  • Establish Your Hypotheses
    • Determine what specific results you expect to see from these tests so you can identify success.
  • Choose a List Segment
    • Your email list is already segmented so select one segment to test and ensure it is sizable enough to provide meaningful data.
  • Establish Baseline Metrics
    • Establish your current performance metrics for that sample such as open rate, deliverability rate, unsubscribe rate, and click-through rate for the sample.
  • Create and Schedule Your Test Emails
    • Create a handful of test emails to rotate through the list sample and schedule them for the sending frequency you outlined in the hypothesis.
  • Measure and Analyze Results
    • Measure your results against the hypotheses and the baseline results you recorded. 
Then start all over again.
Silverpop, the global provider of email marketing and marketing automation solutions, suggests in the blog post "Time to Whack Your Email Program with the Behavior Stick?" by Loren McDonald, to test then go one step further:  combine the customer's behavior, or lack of it, with dynamic and automated message tracks that trigger in real time.

McDonald suggests “ building out dozens of automated email programs that launch based on customer/subscriber behavior (action/inaction – such as visiting a specific Web page), events/dates (birthdays, purchase or registration anniversaries) and other triggers such as price changes, inventory status, new content becoming available, etc. The shift toward behavior-based triggers greatly increases relevance and delivering "the right message at the right time," but also then drives the timing of your regular broadcast or promotional emails.”

What this might look like is engaged subscribers will receive three emails a week, inactive or low-engagement subscribers might only receive two emails per month.

National Geographic
The Marketing Sherpa article, "Email Marketing: Why National Geographic uses business rules and frequency caps"  highlights Eric Brodnax, EVP, Digital Products, National Geographic Society, who shared at the recent Responsys Interact 2013 in San Francisco steps about how they sought to overcome the challenge of increasing unsubscribes, particularly among the best converting subscribers who were receiving the highest volume of email. Brodnax suggests taking a very customer-centric approach - moving from campaign-led to customer-led marketing.

“What we saw was the retention rate was directly correlating to the number of messages they were receiving,” Eric said.

National Geographic used three learning’s to turn the unsubscribe problem around:

1. Ignoring your customer’s wishes impacts the entire business.

2. Your organization needs unified ownership of the customer relationship.
  • Without central oversight, it’s easy to mail too much.
  •  It’s often your best customers who are treated the worst.
  •  Problems compound as time passes.
3. Tailor your message to your (internal) audience.
  • Use analogies. Numbers don’t speak to everyone. In this case, Eric used the analogy of over fishing the ocean.
  • Be patient. You may need to repeat your message again and again.
  • Appeal to core values. Most companies claim to respect the customer and value collaboration.
The conclusion I've drawn from the three perspectives is that my approach works for my brand, but you simply cannot test and measure enough. Do more of it and measure what matters. Additionally, every brand in unique and has to determine for themselves their measuring stick for frequency success.  To take your email conversion performance to the next level, study subscriber behavior (action and inaction) and adjust frequency, and budget for research to understand what your consumer truly wants, not what your think they want.

Monday, August 12, 2013

The Psychology of Pricing Part II

A Balancing Act

By Laura Iles - Senior Consultant, Integrated Insight

In the process of evaluating pricing strategies, we all begin the same way: searching for the Holy Grail of strategies in our space, the one to maximize profits. Beyond the basic math, then, what is it that differentiates the leaders in an industry?

To answer that, we must consider the broader impact of consumer perception and behavior within the context of pricing decisions. Occasionally, strategies which seem less attractive become more valuable when the psychological impacts of pricing are considered, and vice versa.

Pricing strategies require a delicate balance of the company’s requirements and the consumer’s needs. Too often, companies employ a strategy that blatantly ignores one of those factors.

Dynamic Pricing

Dynamic pricing in particular conjures images of the airline industry. Customers feel obligated to monitor multiple ticketing options over a series of days in their effort to find one that fits their needs at the right price.

Of course, we all know of someone who has gone through this effort, only to arrive at the gate to discover that their seat is gone, the flight oversold in an effort to maximize profits.

To the consumer, this process is stressful, frustrating and dis-empowering – not the concepts you want associated with your firm.

Price Matching

Price matching strategies reverse this imbalance of priorities. As big box stores price match online retailers in an effort to cater to their customers, it leads to a decline in profits that ultimately hurts the company and the consumers.

Consumer –Targeted Pricing

Other stores, such as retailers Staples and Home Depot, have eschewed the low online price strategy and instead taken a multi-pronged approach. They combine dynamic pricing, shifting in response to competitor’s pricing, with variable customer pricing based on demographic factors. [1]

In one such example, customers on the Staples and Home Depot websites are targeted by location (using their IP address). Proximity to a competitor’s store lowers the price point they are shown, while proximity to a local Staples or Home Depot store raises the price point. Sometimes the difference is negligible, other times it is significant. In neither case is the consumer aware the pricing has been tailored specifically to them.

Consumer Reactions

The targeted approach is perfectly logical from a business perspective. The more competition, the more it begins to make sense to compete on price. In low-competition areas, higher online prices ensure you do not undermine your brick and mortar business.

Unfortunately, as in the airline and sports industries, consumers do not appreciate the idea of paying more than their neighbor for the same product. The secrecy surrounding the mere existence of the practice further aggravates their sense of distrust.

To date, these stores’ refusal to divulge precisely how the pricing is determined leaves shoppers with the uneasy feeling that that they are being penalized for the city in which they live.

Ultimately, the lack of transparency is damaging brand images and leaving shoppers wary of being monitored and targeted.

Learning to Love Dynamic Pricing

Compared to wholesale price matching or a flagrant disregard for the consumer’s experience, the targeted strategy in and of itself is a valuable one. There is nothing to be gained, for either consumers or retailers, by continuing to engage in price wars, slashing prices to match other retailers and cheap online sources. Dynamic pricing, in its various incarnations, works.

The challenge facing many companies today is to increase consumer acceptance of new strategies by introducing them in such a fashion as to highlight the benefits to the end user. High barriers to entry have, to a certain extent, protected the airline industry from repercussions relating to the frustrations around pricing strategies. For other industries, success will not come so easily.

The sports industry in particular has handled the transition into dynamic pricing well, and can serve as something of a model for other industries. Teams were slow to adopt dynamic pricing for fear of alienating fans, a stance which helped to reassure loyal customers.[2]

Since adopting dynamic pricing, several of the teams, along with one of the main software providers, Qcue, have been remarkably forthcoming in discussing how and why new pricing strategies were implemented.[3] As a result, the variable pricing has slowly gained approval among fans, while team images remain untarnished.[4]   

Transparency goes a long way towards dispelling customer discomfort with new pricing strategies. The most efficient and profitable system in the world won’t do you a bit of good if you damage your brand because your customers think you are taking advantage of them.