Monday, July 29, 2013

Executing Strategy

What corporate leaders can learn from the local high school band

Joni Newkirk – CEO, Integrated Insight

Much has been written about the propensity of business strategies to fail in execution.  In The Secrets to Successful Strategy Execution, the authors relied on an extensive survey of business executives and employees to find that three in five consider their company weak at execution.  The Strategy Execution Survey conducted by the AMA, primarily of Human Resources professionals, found 62% rating their company’s ability to execute as mediocre or worse.  Insights vary, but many agree that poor communication and lack of clarity and alignment are often contributing factors.  That’s why business leaders could benefit by taking a page from the high school band playbook.

Many band directors are in the throes of planning their fall football halftime program.  All of them know even the best program, with the greatest music and the most artistic effects, will fall flat if executed poorly.  One wrong turn by a trumpeter or a missed note by a tuba player and you’ll hear the collectively sigh from the stands.  Perfection means every member of the band performs flawlessly, not just some. 

Consider the steps they take -
  • It goes without saying that everyone will be working off the same sheet of music.  Not last year’s program for some or a favored songbook for others.  And everyone is expected to play the entire song – not just the parts they like.
  • The song sheet isn’t just tossed over the fence a few minutes before halftime.  Before they ever hit the field for a practice run, the band will have a chance to learn the music and ask clarifying questions.  Every musician will know their notes, their part of the performance.
  • Once on the field for practice, every member of the band is given their exact positions and movements for whatever formation has been designed.  No guessing where they are supposed to be and when.  The formation only works one way.
  • Prior to their first performance, the band will have practiced the same song and the same formation for weeks on end.  A relentless pursuit of perfection to avoid that one misstep or one missed note during their grand debut.
  • And there is unquestionably one and only one conductor on the field.  All eyes are focused on the same leader, waiting for the signal to start. 
Painful, yes, but rewarding as well when weeks of hard work pay off with a beautiful performance. Great strategies are just ideas on paper; execution makes them real. The band director knows what few business leaders care to acknowledge – the hard work is in execution and that is where they have the greatest chance to fail. They know it takes time to bring a disparate group together to perform seamlessly as one, to nurture newbies and encourage seasoned players that change is good.

Who is your conductor?  And is everyone playing their song?

Monday, July 15, 2013

The State of Movie Theater Pricing

Would You Like a Movie with your Popcorn and Drink?

By Kirsten Snyder - Director, Integrated Insight

After working in revenue management for airlines, the industry that fathered the concept of demand based pricing, I am amazed to see other industries with perishable products that charge the same price day in and day out with little variation.  So I have been scratching my head for awhile when I look at movie theater pricing.  Why does such a huge money making industry rely on popcorn and soda to generate the majority of the theater revenue?  They offer matinee pricing, senior discounts, different pricing for 3D and IMAX and even 3D IMAX, but what movie theaters have not done is use customer demand to set pricing and in turn use pricing to influence customer demand.

A recent article on called “Should we REALLY expect  $50 movie tickets?  Probably” specifically discusses how Regal and Paramount bundled several products to create a $50 mega ticket.  This in itself is an interesting concept, especially to counter an apparent industry challenge of declining home video sales.  However, I found Steven Spielberg’s perspective on theater pricing to be the most interesting.  He believes that movie pricing will begin to move toward a demand based model and I agree.  Likely a significant shift to get from current state to future state, including more collaboration between theaters and studios, but I think it is inevitable.

Think about the factors considered when contemplating a night out at the movies - what movie is playing and interest in that movie, what time it is playing and where it is playing.   As the theater owner, if you know the 7pm showing  of World War Z on the Saturday of opening weekend is going to be the highest demanded time and movie, why would that cost the same as the Monday evening showing of Iron Man 3 that has been out for 2 months?  A demand based pricing strategy could actually spread demand and enable theaters to “right size.”

So, why aren’t theaters following the same path as airlines, hotels, sporting events, concert promoters, and many more?  I would suspect several reasons, with studio contracts and fear of lost business high on that list.  Theaters have a tiered revenue sharing structure in which the studio receives a higher share of the revenue closer to release date and less revenue the longer the movie has been out.  In one instance of a very popular movie opening, the studio took 100% of the ticket revenue and the theater got nothing for the first week.  With this type of tiered revenue structure, theater owners may not think it is worth it to implement a seemingly more complicated pricing structure, especially if there is a risk of volume loss. 

To solve this studio favored revenue structure, the writer of the article “Economics Of The Movie Theater – Where The Money Goes And Why It Costs Us So Much” believes that the theaters need to collectively stand up to the studios to negotiate a better revenue sharing model.  Perhaps a “collective bargaining” of sorts would make it easier to renegotiate studio contracts, while at the same time continuing to offer an even playing field for the theaters.

However, even if a new deal is negotiated with the studios, most theaters are a commodity, offering virtually the same product.  Without differentiated product, the theaters are really competing on price, which is a losing proposition.  Given they have been doing this for years, theater owners may be wary to step out and change prices due to the risk of lost business.  Investing in differentiated product and segmentation can help continue to drive demand regardless of higher prices, while also upselling guests into higher yielding pricing -more to come on those topics.

Monday, July 8, 2013

The Psychology of Pricing

By Laura Iles- Senior Consultant, Integrated Insight

The sheer volume of recent articles on the subject of dynamic pricing, spanning publications from Forbes to Time to local news reports, underscores its success in a variety of industries. As dynamic pricing makes its way from the travel and hospitality industries into sporting events, consumers are faced with fluctuating prices in more and more areas of their lives.

Unfortunately, challenges linger and some customers remain wary of the strategy. Specifically, consumers are often frustrated with what they perceive as a lack of fairness, a system that is too complex, and the lack of transparency surrounding pricing.

Whether it’s a seat on a plane or in a stadium, discovering that the person next to you paid half of what you were charged will sour an otherwise enjoyable experience.

The company that surmounts these obstacles and provides a dynamic pricing experience which meets the needs of the customer, while still maximizing revenue, will pull ahead of the competition and garner additional loyalty from fans.

Cross-Disciplinary Solutions
In an effort to find such a solution, two professors from Northwestern University, Jeff Ely and Sandeep Baliga, have applied both economic theory and psychology in a controlled experiment. They are testing a new approach to optimize pricing and drive customer satisfaction, using a variant of dynamic pricing to sell tickets to the university’s basketball games.  

Ely and Baliga employed a reverse auction, beginning with the highest price and reducing it over time, to ensure they captured maximum value. A refund guarantee assured buyers they could purchase with confidence.  

In a recent podcast with Sarah Green of the Harvard Business Review, Ely and Baliga discuss their findings; the full podcast is linked at the end of this post.  Future blog posts will contain discussion of additional topics in the podcast, including the benefit of secondary markets, such as StubHub; the pitfalls of price matching; and the challenges of pricing to address both company goals and customer needs, but below, I highlight some of the interesting and unanticipated results brought to light through their experimentation.

An Innovative Test
How do you test consumer behavior at a variety of price points without damaging revenue streams OR upsetting the customer?

Their solution: A reverse auction, starting at the highest price and moving downward, and a guarantee to refund the difference between the price paid by the consumer and the lowest price sold.  Counterintuitive? Yes.  It’s also an extraordinary use of psychology to encourage exactly the behavior the firm wants to see.

Customers are given an incentive to purchase tickets at the precise moment the price reaches their acceptable threshold – they receive better seats and still have a guarantee of being treated fairly should the price drop.  This also has the added benefit of reducing incentives to use secondary markets, as the primary market is now more attractive.  The firm is able to observe customer behavior at a variety of price points, zeroing in on the price that will best support the firm’s goal. This strategy allows for flexibility, and the company is able to focus on maximizing revenue or attendance as needed.  Monitoring shifts in purchase behavior as the price is reduced - little by little - generates an understanding of the likely outcome of further shifts. This in turn prevents the company from reducing the price too much.

In the control studies, the final price set by the reverse auction & refund guarantee strategy matched the pricing suggested by the data based on the secondary market (StubHub).  While the reverse auction approach may work in industries with event driven, one time purchases, time will tell if the method has legs with less emotional based products and services, and a more frequent purchase environment.

Take Away
No strategy is a one size fits all solution, but embracing new approaches may just gain you a competitive edge.  The pricing strategy tested by Ely and Baliga has the benefit of maximizing profits while providing value to the customer through ease of use, transparency, and fairness.

Chasing revenue at the expense of your customers’ experience is a long-term strategy for failure. If you don’t discover that optimal balance of great customer service and profit-maximization, eventually one of your competitors will.

Are you out-behaving your competition?

The original podcast and associated transcript can be found here.

For additional articles on the pricing experiments of Ely and Baliga, please see the links below.

Monday, July 1, 2013

A Brand's First Impression

Your Brand On Wheels 

By Candy Parks – Director, Integrated Insight

I can’t think of a single company that would allow their customer-facing area to be littered with trash or manned by a chain-smoking receptionist who cusses like a sailor.  If only companies paid as much attention to their vehicles on the road!  When your name and phone number is plastered on the side of a truck or car, that vehicle – and the person driving it - is representing your company and your brand – and providing a first impression for some consumers.  Like it or not, people form impressions of your company based on ALL of your touch points – including the ones on the road.

Living in the tourist mecca of Orlando, I see some extreme ‘brand’ vehicles like  Shamu car, Boston Lobster Feast’s Lobster car, and of course, those famous Truly Nolan mouse-mobiles.  Those vehicles are always impeccably clean and driven by people who understand they are on display and representing their brand.  They politely smile and wave at gawkers and even pause to let people take pictures.  As a result, you’re left with a ‘good’ feeling about those companies.

But what about the plumbing company truck that has trash flying out the back?   Or the electrical company truck that has a faulty tail light?  Or the appliance repair service truck that has black smoke billowing out the back?  Are these the people I want in my house?  Definitely not.  If they are this ‘messy’ with their vehicles, I assume they will be as careless in my home.

I pulled up next to a mobile dog groomer at a traffic light one day.  The window was down and the driver was on the phone, absolutely screaming at whoever was on the other end, pounding the steering wheel, and cussing up a storm.  As it happens, I was in the market for a mobile groomer for my two English Springers.  I called the number on the door of the van and got a really, really nice person on the line.  I asked about pricing for all the services I wanted for my dogs.  Then I explained why I would NOT be using their company based on what I saw at the light next to me.  Watching that van, I knew in an instant I did not want this person touching my dogs.  They lost, easily, $1,800 worth of annual revenue from me based on that one sighting. 

Cleanliness of vehicles (and drivers) matters.  Research has shown that cleanliness is associated with safety, security, and attention to detail.  Maintenance matters.  If your vehicles are not well-maintained, I as a consumer assume that you are not paying attention.  Courteous driving matters.  If your driver is aggressive, I assume this person is either hasty in their efforts or rude.  Neither of these is desirable if I’m looking to hire your services.  And I fault you, Mr. Company, for not making it clear to your drivers that you expect them to be polite and safe on the road.

So while you are busy managing your marketing budget, consider managing the marketing that happens on the road, as well.