Debunking value myths part 2: Value pricing in the age of information

• Should we fear failure?​

Across all industries, the reality is that a high rate of failure is normal and prevalent. Simon-Kucher estimates that 72% of all new products do not achieve their profit target – and 25% of companies observed in their Global Pricing Study that all products fail to meet their profit targets.

Often, brands feel pushed into releasing a weak or unwanted product onto the market instead of abandoning it. This is typically after ploughing a significant amount of resources into product development.

Overcoming avoidable failure​

A lack of understanding of what consumers want often leads to this scenario. Instead, an alternative positive approach is for brands to drive consumer value — and this is achievable in both existing and emerging markets — at an early point in time.

These can accurately capture consumer needs and identify lead users, which in turn, help brands travel along their route to market successfully.

This should be conducted at the beginning of the concept stage in order to produce a service portfolio that is fully developed. Asking the market after this initial stage is too late. Unfortunately, though, this delayed reaction is often the norm. Once completed, the build stage will then be met with considerations of costs, and it will then enter the marketplace.

Rapid product launch cycles​

This failure rate is largely due to companies exploiting the age of information gathering. In today’s market, there is more knowledge available that relates to a higher number of segments. This information is often collected through both qualitative and quantitative surveys, which offer both rich and fast responses. Together, these offer in-depth intelligence into what customers want.

In APAC, for example, there are small labels that are nimble and slick. This approach makes them strong marketing players as they commit to fully understanding their target audiences.

Other global markets have spotted this and are developing their strategies to reflect the progress achieved by these APAC brands.

• Is value pricing set to improve, flatline or decline compared to 2017?​

“I believe it will improve,”​ emphasised Dr. Jochen Krauss, economist, pricing expert and Managing Partner of Simon-Kucher & Partners. “​The main reason for this is that this topic is no longer a niche subject matter.” ​

“When critically looking at the topic of value pricing, 10 years ago I’ve seen some industries such as life sciences that started far ahead, while others, such as consumer goods were lagging behind. Yet today, both the former and the latter have developed,” Krauss went on to say.

The marketing function within companies has also been strengthened and now, largely dictates price points. It also plays a prominent function in board meetings, with some companies even employing a Chief Pricing Officer. Visibility and transparency are crucial in this role and is now seen as fundamental in pitching value pricing throughout industry.

How can value pricing be improved?​

Value pricing takes the perspective of consumers and constantly asks:

• What is it that I deliver through my products and services? Or in other words, what is my perceived value?
• How recognisable is my brand?
• How good is my marketing and is this being seen by consumers?

Only if I have transparency on these dimensions, can I then make a decision about how to set a price. Lacking this crucial input, many companies cannot successfully set a price that maximises their revenue opportunities.

• In 2018, what three key considerations do companies need to make in order to obtain the maximum results from 'stepping back and rebooting their thinking around value pricing'?​

Global management consulting firm, Simon-Kucher & Partners, strives to help companies align its price with its value. It recently released a whitepaper entitled ‘Value Pricing in the Chemical Industry - Rebooted’, and as the title suggests, emphasises the importance of analysing the bigger picture before taking action.

Companies should explore several key ideas:

1. Consumers’ willingness to pay for the product or service;
2. How brands charge and the model they use; and
3. Their specific value communication

The product will not sell itself. Its sales are reliant on openly communicating its values.

How are you unique? Where do you sit in the marketplace? How does this compare to your competitors?

Brands should create a survey to ascertain whether your prospective consumers truly understand what your values are, or whether this simply relates to your technical specification, which may be adopted from only an inside-out perspective.

The third part of our interview with Dr. Jochen Krauss, economist, pricing expert and Managing Partner of Simon-Kucher & Partners will be published on Tuesday 12th December.