How can businesses achieve unparalleled growth and maximise profitability in today's competitive landscape? At boobook, the answer lies in our data-powered strategic consulting, anchored firmly on four interconnected pillars: brand, product, pricing, and customer/consumer. By understanding and leveraging these fundamental elements, we guide businesses toward excellence and sustainable growth.
In the previous weeks, we discussed the connection between brand, product and pricing strategy. As we close our "Pricing 360" series, we still have one crucial topic to cover: customers/consumers. When it comes to price, product or brand decisions, it's essential to focus on the individuals or companies who buy your products or services – your customers. Your targeted customers are a crucial aspect of your strategy because they influence how you market your product and are excellent guides when determining which products to put on the market and at what price.
To truly cater to your customers and attract new ones, you need to understand who they are, how they behave, how they feel about certain things, what motivates them, their sensitivity to price (changes), and their purchasing habits.
There are three approaches to get these insights: customer segmentation, path to purchase analysis (P2P), and price sensitivity measurement. At boobook, these approaches are not exclusive but rather interconnected, each informing and shaping the other to optimise the product and pricing strategy. In this last article of our 360-pricing series, we'll explore these three methods to help you learn how to listen and understand your customers better so you can craft more effective pricing strategies.
Understanding your target audience and navigating the customer journey
Customer segmentation is a powerful tool for businesses that want to identify and understand customer groups with diverse preferences and purchasing behaviours.
We all know that the average customer does not exist. There are different types of customers in terms of age/gender, size of business, type of business, purchasing behaviour, as well as what drives their purchase behaviour, i.e. the why behind the behaviour. The latter is key to optimising the product offer and its pricing, as willingness to pay is very much linked to the type of customer you are.
Tailoring your pricing strategy to segments can boost customer satisfaction, brand loyalty, acquisition, and, hence, business performance. A segmentation analysis also encompasses the evaluation of market segment size, providing a solid foundation for your upcoming business cases when introducing new products or potentially even sub-brands. This approach not only aids in understanding the potential reach of your offerings but also offers valuable insights into the most effective strategies for their promotion.
There are several methods to identify customer segments. Most of them are related to analysing market research data, which collects data around the who, what and why of the (prospect) customer.
You might have heard of methodologies such as k-means, hierarchical clustering, latent class and cluster ensemble. Each aims to find segments of people that differ in key characteristics. The most suitable methodology depends on the data as well as on the outcome. At boobook, we use the method that results in segments that are most actionable for the business question.
Discover how Pernod Ricard decoded the travellers’ buying behaviour
The path to purchase analysis covers the entire customer journey, from the moment a need is recognised to the point of product usage. The way we shop and buy today has become non-linear and is changing into omnichannel buying retail. As a result, throughout the customer journey, we now have various ways of shopping, which significantly impacts our decision-making process.
Analysing this path is crucial to impact customer decisions and perceptions. By identifying different triggers and touchpoints along the journey, you can pinpoint the "moments of truth" most influential in leading to conversions. It's important to note that different customer segments may have distinct behaviours and are influenced by different touchpoints – and this is precisely where segmentation becomes valuable.
Conducting a comprehensive study on the path-to-purchase can bring key insights, such as understanding the factors that trigger a customer's need, the specific channels and stores they prefer for buying, the duration of their decision-making process, and how to optimise in-store displays and online activations.
Additionally, this approach can also shed light on how to create the most suitable pricing strategies. However, pricing may not always be the most critical element. It is crucial to understand what customers prioritise before price. Could it be recommendations from peers, friends and family? Perhaps it's catching the brand's advertisement while surfing online? By exploring these factors, you can tailor your approach, so your brand resonates with customers before they even consider the price.
Want to learn more about the path to purchase? Learn more about how we helped Pernod Ricard UK understand their customers' path to purchase.
Analysing consumer behaviour through willingness to pay and price sensitivity
Willingness to pay refers to how attractive a product or brand is at a specific price level. In other words, how many customers will consider your product given a certain price? Price sensitivity goes one step further. It refers to how changes in prices impact consumer buying behaviour. So, how much will a price increase or decrease impact customer choice? The more price-sensitive your brand is, the more careful you have to be with price increases. Conversely, dropping the price of highly price-sensitive brands would be the way to go if you are after boosting volume. Though also realise that increasing again afterwards might not be easy. Temporary promotions could be a solution to this.
Factors like brand image, brand equity, economic conditions, competition, brand loyalty, and ability to pay can affect consumers' price sensitivity. Researching and tracking price sensitivity, together with understanding brand image, helps businesses understand buying behaviour, adapt to market trends, optimise the price strategy and maintain a competitive edge.
To measure price sensitivity, businesses can use quantitative consumer-research-based pricing methods like the Van Westendorf Price Sensitivity Meter, the Gabor-Granger Method, or a Conjoint Analysis. These methods provide insights into customer (pricing) preferences and help determine optimal pricing.
Discover how Center Parcs Europe optimised revenue management and increased profits
Closing the loop
Pricing is more than numbers; it's a language that communicates brand equity, product proposition value, quality, features, key customer groups, exclusivity, etc.
Setting the right price for your product or service demands a strategic interplay of customer needs, perception and psychology, market dynamics and data analytics. By doing so, you can position yourself as a leader in your industry, resonate with customers, and drive sustainable growth.
As we move away from traditional price-setting models, such as solely relying on cost-plus methods, embracing the dynamic realm of modern economics is essential. Your pricing strategy should be a continuous conversation with customers, exchanging value and expectations. Learning, adapting, and refining your pricing strategy through data-driven insights will help you stay ahead and build a thriving customer ecosystem.
If you want to learn more about optimising your pricing, contact us at info@boobook.world!
