How Low Can You Go? How High Can You Get?

Continually rising prices at the gas pump since the mid-1970s has had us all asking, “How high can these get?!” As 2015 slipped into 2016, with oil by the barrel in free fall, we found ourselves asking, “How low can this go?”

The roller coaster of oil pricing per barrel and sticker surprise at the gas pump has a lot of people wondering, “How in the world do they set those prices?”

Companies set their prices according to their own pricing strategy, which “properly prices products or services so that the company can sustain profitability while maintaining or growing its market share,” according to SMstudy’s Marketing Strategy, book one in the SMstudy® Guide series. Even though it sometimes seems as though companies are grabbing for quick profits and letting the future take care of itself, sustained profitability and growth in market share are part of every sane strategy.

Coming up with that sane strategy isn’t as easy as a few fat cats sitting around in a smoky room saying, “Well, what do we want to charge for this?” That question is likely to be followed with another, “What CAN we get for this?” And now our fat cats are talking strategy. The SMstudy® Guide says, “In order to develop a comprehensive Pricing Strategy, a company must specifically evaluate and understand the trends and dynamics in many areas such as the following:

• the features and pricing of competitive products in the market
• the company’s desired positioning, mapped against that of the competition to identify pricing of similarly positioned products
• the consumer mindset to understand the demand and spending capability for each product
• the cost, projected unit sales, and targeted profitability levels of each product
• the innovativeness of each product
• the capability of the production and operations teams to create high-quality products at reasonable costs
• the knowledge of the current and desired market shares for each product.”

 The SMstudy® Guide details nine inputs and fourteen tools companies can use to understand these trends and dynamics to design a successful pricing strategy. One input is the company’s own positioning statement. This statement is important because “how a company markets a product impacts who buys it and how much consumers are willing to pay to purchase it.” The positioning statement identifies who the company wants to sell to and how much it would like those customers to pay. “A company that caters to a wealthier market segment with relatively high disposable incomes, aims to create a premier positioning for the product focusing on the quality of the goods or services, brand messaging, and packaging.” This market position allows for premium pricing, too.  It is no wonder that there are at least three grades of gasoline at every pump.

Another input is “opportunities and threats.” As the SMstudy® Guide points out, “Identifying and analyzing opportunities and threats help the company consider the external factors that may influence the costs involved in manufacturing a product or service and subsequently impact its pricing.” This is why refinery fires, hostile take overs of oil fields, and sudden growth from emerging markets all over the world affect the price of gasoline at the station on the corner.

So, how in the world do they set those prices? By following a rather elaborate pricing strategy.

For more help understanding pricing and marketing strategies, visit SMstudy.com

The information in this article comes from chapter four of SMstudy’s Marketing Strategy, book one in the SMstudy® Guideseries of six books that also include Marketing Research, Digital Marketing, Corporate Sales, Retail Sales and Branding and Advertising.

All about GE-McKinsey Matrix

The GE-McKinsey Matrix was developed in response to the shortcomings of the BCG Matrix, which does not account for a number of factors. It was originally used for a visual representation of GE’s 150 business units to determine which business units were doing well, which needed support, and which should be discontinued. However, the matrix can also be applied to a product portfolio. It evaluates each product on two parameters, market attractiveness and product position, which are the labels of the axes on the matrix.

Market attractiveness and product position are determined by a weighted score for all the relevant factors that contribute to each. There are three levels for each parameter—high, medium, and low—giving the matrix nine boxes in total. The placement of each product on the matrix determines the strategy to be used for the product. A-6 shows the GE-McKinsey Matrix.

Products that fall above the diagonal line are high performers, or are those with potential for either growth or cash flow. These are the products on which a company should focus. Products that fall below the diagonal line are those that typically drain a company’s resources, with small returns and little potential for growth. These products should be analyzed thoroughly to determine which can benefit from selective investment in order to move them above the diagonal, and which need to be discontinued.

The factors used to determine market attractiveness are market growth, market size, opportunity to differentiate product and/or services from others in the market, profitability, intensity of competition, risk to returns, pricing trends, entry barriers, demand variability, distribution structure, and technological developments. The factors involved in determining product position are strength of assets and competencies, customer loyalty, cost position relative to competitors, distribution strength, record of technological or other innovation, relative brand strength, market share, and access to financial and other investment resources.

Advantages and disadvantages of GE-McKinsey Matrix:

Advantages:

• This matrix takes into account a number of factors that the BCG Matrix does not.
• It is visually easy to understand and provides more options to place a product as compared to the BCG Matrix, due to the inclusion of the “low” level on both axes.
• It is conceptually similar to the BCG Matrix, so anyone who is familiar with the BCG Matrix can easily use the GE-McKinsey Matrix.

Disadvantages:

• This matrix does not take into account the synergies between various products. Discontinuing one might adversely impact another.
• The scoring of the various factors using the weights is subjective and leaves the tool open to bias.
• It does not help in allocating the relative investments for each product. 

SMstudy and the Post-Advertising World

We recently read that “We are living in a post-advertising world.” The claim was made by John Horsley, director of Digital Doughnut, a global digital marketing community. Horsley should know, so we took notice.

Horsley explained his claim in a LinkedIn group forum: “Conversations have replaced campaigns, engagement trumps reach, and brands are no longer built by above-the-line agencies, but at every touchpoint the business has with its customers. And the thread that links all these elements is social media.” This resonates with us at SMstudy. We have included a lot about touchpoints, engagement and social media marketing in A Guide to the Sales and Marketing Body of Knowledge, also referred to as the SMstudy® Guide.

Horsley was using his claim to incite and invite members of the group to take part in a survey being conducted to explore the current status of companies and social media and contribute to his work “New Report: Social Media’s Impact on Customer Experience.” He says “businesses have been slow to respond, often hampered by outdated structures, siloed thinking and a lack of strategic understanding.” Now, that really resonates with us because we wrote an entire book on Marketing Strategy as one of the six aspects covered in the SMstudy® Guide and we offer certifications in marketing strategy.

His claim did not resonate so well with others, however. One group member commented, “Social media channels are simply another way to touch someone, as is and remains advertising. Effective communications usually consist of multichannel or cross channel strategies.” We had to agree with several points here. Our Digital Marketing book says, “Given the nature of the online world, which is constantly evolving and expanding—new channels are developing with greater frequency, and audiences are continuously exploring new sources of online content—digital marketers must regularly assess and reassess digital marketing channels for their effectiveness and applicability in helping achieve the company’s overall organizational goals and objectives.”

Social media provide many opportunities for delivering messages that advertise. Within Marketing Strategy whole sections have been dedicated to planning and developing social media as well as other digital channels.

The term “posting” (as it is used in advertising) comes not from posting mail but from a time when fences, street lamp poles, telephone posts and any available urban wall space were festooned with advertisements for products, shows, soon-to-arrive circuses and political candidates. When the rampant postings got out-of-hand, a new posting appeared saying, “Post No Bills.” Now, many marketing and advertising messages are being posted online and in social media. Perhaps we should say we’re living in a post-post-advertising world? Well … maybe not.

Another commenter added, “effective marketing communication is always a delicious idea (whatever it might be) served on many different (multichannel) dishes.” And that’s an idea we can relish.

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What Do You Do When Your Boss Says Prove It

If you’ve ever found yourself having to defend the merits of social media marketing, you’re officially not alone. A recent report on social media marketing in 2015 reveals the struggle that still exists in pinpointing the almighty ROI of social marketing to that skeptic saying “yes, I see what it does…but how does it help?” Usually that skeptic is the boss (in some way or another) and the answer is not so easy to nail down. Social media is proving to be a little slippery.

The newly released The State of Social Marketing 2015 report by Simply Measured cites three major challenges that were impacting social media marketing in 2015. 

They are:
1.    demonstrating the value of social programs within the company; 
2.    overall business integration; and
3.    not having the right tools to measure social media activities. 

Demonstrating the value of the social programs within the company (#1) was, in fact, the top challenge noted (60%) by survey participants consisting of 600 media marketing professionals.
The reports states, “Companies of all sizes and maturity levels are struggling to prove the value of their social programs. Social media activities can be difficult to quantify, and marketers are trapped between readily available “vanity metrics,” such as Likes and followers, and difficult-to-measure objectives such as brand awareness.”

It goes on, “When it comes to understanding, proving, and quantifying value, social marketers are still trying to find the sweet spot.”

It’s logical to consider (as the report does) that the “sweet spot” could be found by addressing the challenge of #3. or “Not having the right tools to measure social media activities,” which according to the same 600 marketers, is a major frustration for those attempting to work with current analytics options. In addition, they noted the dissatisfaction with their current set of tools and the difficulty of interpreting the data they do have. And here’s the really frustrating bit, it’s hard to drum up enthusiasm and encourage further investment when the current tools or methods don’t allow marketers to provide highly accurate data which would, in turn, drum up enthusiasm and encourage further investment. And the wheel goes round and round. 

Finding the right tool for the right job seems to be an essential part of the plan. In the area of data analytics tools, the report suggests either an inability to hone in on what is truly needed or simply an area that hasn’t been fully addressed in regards to tool development. According to the report, most surveyed are using multiple tools for tracking the various social media channels and as many as 65% said they were using the platform’s native analytics tool.

 
All that being said, the future looks very sunny for social marketing. Tools will emerge that address the needs of social media marketers. Social media marketers will become more adept at interpretation. Chances are both will occur (are occurring). 

And whether the frustrations continue on or are assuaged in the coming year, it might not matter. As squishy as the analytics may appear to the bosses, they’ve seen enough “proof” to increase social marketing budgets, on average, by 12.5% over the next five years from 2015’s 9.9% to 22.4 in 2021. 

For more on sales and marketing, visit www.smstudy.com.

Sources: 
The State of Social Marketing- 2015, Simply Measured, http://simplymeasured.com/#sm.0001gymsunkgqdcepli19xtqnlo4p