Market and value based pricing part II– Monitor Customers Emotions with Data to Make Pricing Decisions

Continuing to evaluate Vamoose Products’ pricing strategy, we look to their historical sales efforts and channels and to their desired sales strategy for the future. Upon reviewing their web sales, which were primarily consumer oriented, and their very limited business to business sales we found both similarities and differences from the review of the services business in our last blog.

 

The major difference between the businesses was that almost all web sales were made to consumers and the majority of sales were for home/domicile use. Automobile related use was the second largest use and the treatment of a specific new purchase (for example a couch purchased at a yard sale or via eBay which had been owned by a smoker) rounded out the catalysts for purchase. As you may recall the services business had a higher percentage of clients from the automotive sector. From a product sale prospective the average sale price to residential related clients was significantly higher than sales to automotive related consumers. Secondarily, the majority of web purchasers found the company and products from search engine searches with referrals being the second most likely source of the sale. The service business was a complete cold call business with a few referrals.

 

The similarities between the businesses were striking. The overwhelming majority of clients paid, and paid handsomely, for expedited delivery service for their purchases. The web based clients were also purchasing Vamoose after a long line of alternatives did not solve their problem. We again find an inelasticity of demand vs. price within reason – or in other words – people will pay more for solutions and expedited services and small incremental pricing changes would not affect the demand or sales volume.

 

Upon reviewing the web pricing we found numerous issues of concern. First we identified that the company had been partially subsidizing expedited freight – this was immediately rectified. As all shipments were weight and service based, consumers could easily verify the cost of shipment, and there was no reason for subsidization. Also, particular carriers such as the USPS offer flat rate services, which can easily be verified. We also investigated utilizing PayPal on some shipments as they have a partnership with the USPS and offer integrated shipment features, online tracking, and some limited discounts. The integrated shipping also saved labor cost in shipping and in accounting due to the downloadable reports offered by PayPal.

 

We also found the company offering overly aggressive small volume discounts which would discourage channel and retail sales and significantly depressed sales margins. If the company desired to ever sell via other channels, through retail, catalogs and other resellers it had to be the steward of the products price and value. We also found bundled discounts where the company resells products which are complimentary to their products. These bundles were decreasing the gross margin, increasing the sales price, and introducing both inventory and warranty risks. As the bundle prices increased, and more were sold, even more damage would be done to the operating margin of the company. To rectify the situation these discounts were immediately reduced and the bundle prices were increased.

 

Upon reviewing the pricing of individual products we also found discrepancies between similar products. For example the same sized bottle of product was priced differently between the different scent offerings. Upon reviewing the cost of the scents, we found there was no costing reason for the price discrepancy and the products were brought into a uniform pricing scheme.

 

While these changes may seem trivial the short term and long term implications of the changes are dramatic. From a long term prospective we have solidified the company’s credibility with future resellers and retailers by establishing the products value at full retail price, have streamlined the discounting pricing model for retailers, and are no longer competing with retailers with subsidized shipping.

 

The immediate impact of the changes was an increased sales and profit margin and a reduced labor cost.

 

Upcoming Blogs:

“Product Packaging and labeling your 3 second billboard to a prospective customer.”

 

"Jump starting PR efforts, the effect on Search Engine Marketing and Optimization from PR efforts, and getting attention from the media.”

 

“Using contract call centers for lead generation, sales, customer service and support, and disaster planning.”