But in the early 2000s Allstate conducted some research that caused it to revisit that assumption. Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering carefully choosing features and names to create clear differentiation and value and setting prices using feedback from in-house experts and, when possible, drawing on market research.įor decades the auto insurance industry operated on a simple assumption: Consumers are highly price-sensitive, and most will buy the least-expensive plan they can find. The SolutionĪ multitiered offering (typically with three options) can use a stripped-down product to attract new customers, the existing product to keep current customers happy, and a feature-laden premium version to increase spending by customers who want more. Key steps include identifying “fence” attributes that will prevent current customers from trading down from the existing offering carefully choosing features and names to create clear differentiation and value and setting prices using feedback from in-house experts and, when possible, drawing on conjoint analysis and other market research.Ĭompanies often crimp profits by using discounts to attract price-sensitive consumers and by failing to give high-end customers reasons to spend more. The author, a consultant who has helped many organizations adopt G-B-B pricing, presents a step-by-step guide to devising, testing, and launching the strategy. There’s nothing new about this concept, of course-think of the different grades of fuel at any gas station and the varying packages marketed by cable TV providers, to name just two examples-yet many companies and industries have failed to embrace it. A multitiered offering can use a stripped-down product (the “Good” option) to attract new customers, the existing product (“Better”) to keep current customers happy, and a feature-laden premium version (“Best”) to increase spending by customers who want more. The note is accompanied by a free Excel worksheet that contains sample problems prebuilt Excel models to calculate demand curves, price elasticity, and profitability metrics for firms and their channel partners and charts and graphs that help visualize the results.Companies often crimp profits by using discounts to attract price-sensitive customers and by failing to give high-end customers reasons to spend more. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing a marketing plan. Finally, retailer profitability metrics including retailer margin and penny profit are discussed. The concepts of revenue, costs, contribution margin, gross margin, and net income will be introduced to inform profitability analyses. Users will learn how to produce and interpret demand curves and calculate the price elasticity of demand. This toolkit will introduce the fundamental terminology and calculations associated with pricing and profitability analysis. Pricing is one of the most difficult decisions marketers make and the one with the most direct and immediate impact on the firm's financial position.
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