Entries categorized as ‘eBiz Promo & Pricing’
One of my greatest interests in life is flying and aviation. Clicking on global aircraft manufacturer Cessna’s Caravan campaign site www.caravanpostcards.com I was faced with an interesting selection of linked pics below:
From left to right these pictures link to:
- http://www.conquerjungles.com/
- http://www.landtrophybass.com/
- http://www.flywithdragons.com/
In all cases I expected eye candy in the form of high resolution pics and videos of Cessna’s Caravan aircraft. But to my disappointment – these sites seem to have gone AWOL (absent without leave 
. The two first link to rogue landing pages that I assume are not owner by Cessna.
Without going into to much detail find below the interesting selections I was prompted with clicking conquerjungles:
Of course I have nothing against Latin or Vietnamese girls. But clearly this is a good example of how broken links and rogue campaign site links will decrease your overall market communication effectiveness as you, much like Cessna, maybe paying for my clicks. What is even worse than the potential loss of sale and poor customer experience is that this hurts the Cessna brand. And I imagine our friends at Cessna have no clue this is going on.
Categories: eBiz Demand Generation · eBiz Management · eBiz Merchandizing · eBiz News and Trends · eBiz Promo & Pricing
Tagged: Brand threat from broken links, Cessna broken links, Cessna campaign site linking to adult material., Mismanagement of landing pages., Risks with broken links
One of the most difficult disciplines in marketing is that of pricing and elasticity of demand. In today’s article, I wanted to give my 2 cents on cross elasticity for substitute products in a portfolio. I have seen a lot of it lately. And I am realizing how easy it is to sell your stuff online such that you, by adding aggression to your low end, actually hurt your high end and total margin$ attainment.
Picture a portfolio with products A and B below. Product A is a cheaper, sometimes negative margin bearing, traffic and units driver. B is a more high end product. Because there are numerous configurations of A and B the high end target segment of product A will consider low end configurations of product B as well as high end configs of product A. Similarly, low target segment of product B will consider high end configurations of product A as well as product B configurations. As we increase margin aggression on product B we see volumes picking up (especially in lower price bands).
Problem is we also see the volumes of product B going up making impact of low-end price aggression visible both in margin and mix shift (lower chart). For most marketeers this should be an intuitive scenario.
What complicates things is that due to channel specific ownership of product prices, I cannot influence the price on product B. Had it been possible to lower the price, we would be able to sell much more units of B and thus raising the overall velocity significantly without hurting the mix too much.
The subsequent variation of margins is high. We see the organization wobbling from guard rail to guard rail in an attempt to balance unit growth and profitability. This highlights both a cross elasticity consequence but also another example of how channel specific strategies can lead to sub optimization in the on-line channel.
Key takeaway: make sure you have full freedom to adapt the full portfolio to a new pricing level for a specific product. In this case you may need to lower prices on both A and B to actually exit promo period with an optimized margin$ attainment.
Categories: Web Analytics · eBiz Channel Conflict · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: cross elasticity and channel competition., Managing substitue products
Despite many weeks of resistance, I had to yield to team pressure and start learning about the latest buzz word in site and offer development: multivariate testing (MVT). Apparently good old split testing (A/B) is no longer good enough.
Jupiter Research state in a report from 2006 “Multivariate Testing and Site Optimization, STO-06-C06” that “Thirty-two percent of site operators in companies with $50 million or more in annual revenues have deployed site testing and optimization applications. Site operators should incorporate site testing and optimization into a usability framework that leverages traditional usability principles, customer satisfaction measurement, and Web analytics to comprehensively measure and improve Web site usability.”
We are now in 2008 and I can clearly see that MVT has gained a strong foothold in my organization. I guess the $50m kind of defines the scope of MVT as a growing set of applications for big corporates.
So what is Multivariate testing?
MVT can be described as a quantitative way to understand and influence your customers’ user experience. According to Wikipedia multivariate testing is “a process by which more than one component of a website may be tested in a live environment. It can be thought of in simple terms as numerous split tests or A/B tests performed on one page at the same time. Split tests and A/B tests are usually performed to determine the better of two content variations, multivariate testing can theoretically test the effectiveness of limitless combinations. The only limits on the number of combinations and the number of variables in a multivariate test are the amount of time it will take to get a statistically valid sample of visitors and computational power.”
The primary purposes of testing in order of importance (according to Jupiter research) are:
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Site content
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Promotions
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Step processes e.g. checkout
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Landing pages
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Site navigation
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E-mail marketing
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Performance metrics e.g. revenue, average order value
In setting up an MVT, Jupiter recommends that you:
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Create hypothesis for testing on user behavior e.g. lifestyle images connect better with target segment than product images.
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Establish multiple objectives such that not only conversion is tested but the general interaction with the site and fulfillment of KPI e.g. revenue/ user.
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Segment test participants based on the hypothesis – go narrow rather than wide.
As I start to use this new tool I will update my blog with more in depth views on this emerging field of optimization tools.
Categories: Web Analytics · eBiz Merchandizing · eBiz Payment & Checkout · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: A/B testing, merchandizing, Mulivariate testing, optimization of site, pathing and KPIs.
I don’t see a clear correlation between price point levels and Site visits. It would be an intuitive relationship, i.e. low prices lead to more visits, but actually in my work this is not a strong relationship.
Time after time I see how price point drives convergence and conversion especially. Site visits is much more dependent on magnitude of advertising and advertising spend. To some extent also the nature of leads generation tactics that you are driving (e.g. low end products in affiliate channel will drive a lot of traffic but not necessarily a lot of receipts).
So bottom line, if your problem is traffic, be careful overly using your pricing tool. If you lack weighted average price point mapping tools beware of tanking your margin for the wrong reason. Chances are your prices are right but that you need to step up advertising, affiliate and search engine optimization activities.
Categories: Web Analytics · eBiz Promo & Pricing
Tagged: driving traffic with aggressive price and promo, Using price points to drive site visits
For an understanding of consideration please check previous article here.
I often come across situations where overall convergence of customers on the site suddenly goes down. Many react negatively and perceive the attractiveness of offer and pricing as the key issue.
My key message for today: if the downfall comes from consideration, and your conversion remains stable, then your issue is probably explained by a change in the distribution of your leads sources.
Most sites have a mix of leads sources in their demand generation activities. The biggest source is typically search and banner media, followed by affiliates and some kind of internal demand generation e.g. offline advertising or email marketing.
Typically some types of leads will have lower consideration rates. For example, driving clicks using pop-under advertising (a new window is opened behind your browser screen only to be viewed when user is closing down browsers) tends to generate very low consideration as the proportion of irrelevant leads is high.
Although most people perceive a declining consideration rate as an issue, the consideration alone will not give you the full picture. In order to adequately assess the impact of a lower consideration on your business you need to a) understand if you are getting leads with lower consideration profiles and b) assess what the cost impact is (or ROI) on the low considerations leads you are driving. If the latter are more cheaper in % than the % decrease you have seen in proportionate consideration, chances are this is not bad news.
Categories: Web Analytics · eBiz Affiliation · eBiz Demand Generation · eBiz Merchandizing · eBiz Promo & Pricing
Tagged: consideration problems, Decrease in consideration, unexplicable drop in consideration.
When designing promos in your business there are an infinite number of options. The standard considerations are balancing units, margins and average revenue per order in your chosen area of incentive. The tools to do this are many. This article will address one of these tools namely what I call “thresholding”. By thresholding I mean setting a monetary threshold as a requirement for a reward expressed as a rebate %, dollar amount or complimentary product or service e.g. buy for more than $1000 and you get 20% off.
The key driver of a thresholding play is to shift the mean of your average order value to the right on your distribution bell curve. And the success criteria is that the cumulative dollar cost of promo (e.g. 20% rebate off $1000 = $200 x the units at or above cut off) in your sample scenario is lower than the incremental margin$ of the orders that will be up-sold from below the cut off, to at or above the cut off.
Simply speaking if the incremental margin$ from the anticipated up-sells > the $ cost of the promo for those normally purchasing at or above this level. See example below for a very limited sample size:
TRU = Total Revenue per Unit ~average order value, Systems = computer
The above histogram is a very useful tool of estimating the cost of a threshold up-sell offer. By bucketing historical orders in average order value buckets, you should discover a normal distribution. From this you can build scenarios around thresholds and simply calculate the margin cost vs. your estimated upsold units to the threshold. This is not exact science but will provide with the rigour you need to prove to your management that you have made some sound assumptions and assessed the risks involved.
Good hunting!
Categories: eBiz Payment & Checkout · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: online promos, threshold offers, Threshold promos, thresholding
One of the first learnings I had in the on-line business was the trade off between offering the customer a lot of different options, and actually having the customer choose an option in the first place. The more options you throw at the average customer, the greater the likelihood of the customer continuing without an up-sell/accessory, or worst case abandoning the purchase process all together.
That said, there is some granularity to it. For some customers, e.g. the tech savvy recurring advanced customer, the absence of an option can mean the loss of a sale.
So how do you optimize the option range vs. up-sell conversion trade off?
A friend of mine who used to head up a movie theater operation explained to me that no matter how they priced popcorn, 80% of visitors chose the mid sized option (out of small, medium and large) and 75% always chose some kind of bundled offer with soda (note this is in Europe, in the U.S. I doubt anyone choses anything smaller than XXL) .
What was even more interesting was that margins in the movie distribution business are squeezed by the immense bargaining powers of Hollywood. So most of his margin $ were generated not by George Clooney but by fried corn, soda and candy. The situation is similar in the computer industry where the systems themselves for the most part generate little margin.
So how does this relate to accessories and up-selling in an on-line store, configurator or basket? For starters the Pareto rule applies here. My experience tells me that two to three choices out of five or more published options will capture 60-95% of the users that chose an option. These options are all you need (see below an example from Amazon default up-sells for a Garmin Nüvi). Adding more options than this will in most cases hurt your conversion of this option all together even though may sell more types of up-sells.
My advice is to on a monthly basis keep track of the number of up-sell options per assessory/upsell and your total up-sell options so to keep check out process at a minimum with conversion and margin dollar at a maximum. This will ultimately be a test of how good you are at saying no to the various product managers in your e-business.
Categories: eBiz Management · eBiz Promo & Pricing · eBiz Upsell- & Crossell
Tagged: amazon upsells., assessories sales, cross sell, Grow your margin$ by limiting your upsell options, margin optimization online, margin$ per box.
Many of us Business Managers find ourselves managing our business relative to a forecast. This involves some clear benefits including simplicity, ease of communication and at least a perception that you always can bridge out the GAPs to plan and go fix.
However, we all know what a typical forecasting process looks like. Not always the most scientific and often a compromise of inputs from different teams. Much of effort is spent on extrapolating trajectories based on historical seasonality and sequentials. I find myself looking at forecasts that include both gross revenue and margin targets.
The normal approach to calculating margin is to look at an estimated price level (could be an average revenue per user or total revenue per unit) and apply costs based on an estimated product mix given the strategic goals for the portfolio. More often than not, you find in the beginning of the quarter you are not on your target (either above or below). And very often your plan is based on your historical sequential growth than what is actually expected to happen in the market.
My key message is this: if you are not growing with the market you have no raison d’être. If you haven’t managed to secure the right cost structure then focus on fixing that instead of pretending that you can grow profitably with the market. Don’t screw up your market position!
Market share is key. Take a margin$ bath in the quarter while you give your purchasing/ product unit hell (or perhaps your managing director…). Otherwise you will end up in the negative spiral of opex descaling with decent margin% but no margin$ to show for. I have seen it happen.
Essentially what I am saying is to look at your weekly QoQ growth sequentials and compare these to the leading forecasting estimates of market growth for the quarter. You may have to do some seasonality and mix adjusting (a few products will contribute most of the growth) but in essence make sure that the sweet spot products that are driving growth in the market are headed out of the ball park in your dash board.
Don’t try to focus too much on the margin – unless you are way off. Set the equilibrium margin % where you are at least sticking to market growth. And do not listen to the dash board bureaucrats. They will be delighted to lose 50% of market share as long as they hit plan
Categories: eBiz Management · eBiz Organizations · eBiz Promo & Pricing · eBiz Strategy
Tagged: growth guiding profitability, margin % equilibrium, Market Premium, online market share, sequentials.
The methods and teachings of Blue Ocean Strategy (BOS) are, next to Michael E Porter’s renowned frameworks, some of the most comprehensive tools you can use to fine tune your differentiated, low cost on-line strategy.
In my view, the beauty of BOS lies in the power of visualization and the creation of a strategy canvas (see below). In order to create the canvas you need to spend some time understanding what the present (and potential) competing factors are.
Competing factors have many names but easily expressed you need to understand what your present (and potential) customers’ present (and potential) needs are in your market space.
When Small & Medium customers (0-500 employees) are asked what they see as most important in purchasing a laptop computer, their answers give us some hints as to the present competing factors (according to Technology Business Research, Inc, “Corporate IT Buying Behavior & Customer Satisfaction Study: Notebooks”, Q407):
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hardware reliability,
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product design/features,
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technical support and
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customer services.
If you wish to sell this product in the online channel, you need to add some more channel specific online factors. In my view, these would be:
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ease of browse and order,
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delivery time (if applicable stock level) and
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effectiveness of payment methods.
Last you need to add Price & Promo attractivity.
Now this was a quick application of the BOS strategy canvas that serves the purpose of this discussion. Let me now plot where I think a Blue Ocean is evolving in the On-line Computer Sales SMB market space.
The key takeaways are the following:
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I believe the most successful on-line retailers should invest less in price and promo.Firstly, this is red ocean and with most of sourcing from Asia, a long term component cost advantage is difficult to sustain. Secondly, running promo activities is costly. You need creatives, extensive market communication and professionals to manage this which creates overhead. Finally, the computer/ PC market is already a low margin industry with low end lines selling at negative margins so you will hardly make any money doing it.
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Hardware reliability and product differentiation is of course important. But most computers are exchanged within 3 years and the marginal cost for being the leader here doesn’t seem as attractive to me. Good is good enough.
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Technical support and services services are two often outsourced or overlooked domains where I believe there is an open blue ocean. If you manage to maintain proximity to your customer and integrate tech support with up-sells, license renewals etc – you will leave your competition behind. Don’t mix up the cost effectiveness of the on-line channel with removing support functions. Invest and excel.
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Three key areas in the on-line space that surprisingly many don’t handle well can be unique differentiators in your strategy:
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Make your site ridiculously simple to order from - this is the best recipe for conversion and cost effectiveness (fewer sites to keep track of and longer duration of your
space station).
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Compete with fastest delivery. This is often forgotten as retailers have integrated supply chains with suppliers. Sure you save money, but you lose sales. Make sure you set the delivery (or stock) expectations up front.
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Many transactions will depend on the offered payment methods (credit in specific) but also your effectiveness of handling these processes. Invest in these processes and your business will grow.
Categories: eBiz Big Picture · eBiz Channel Conflict · eBiz Promo & Pricing · eBiz Strategy
Tagged: Blue Ocean Strategy, Computer SMB market, eBiz Strategy, Michael Porter Online Strategy, Online Pricing Strategy, Online Strategy, Price and Promo Strategy, Promo strategy online., Small and Medium Business Online Sales, Small and Medium Business Strategy
