Presentation on theme: "The Great Marketing Roulette"— Presentation transcript:
1The Great Marketing Roulette Ashutosh Sinha, IMRB InternationalBalendu Shrivastava, IMRB InternationalGood morning! The first paper of the day today and we would be talking about what we call as the great marketing roulette
2What is common in . . .Non Digital Cameras - low cost of cameras but high cost for filmsCDMA Phones - low cost handsets but high tariffsLet me ask you a question … What is common in These are all dual revenue category products For the non digital cameras we have low cost of cameras but high cost for films For premium razors we have low cost of razor and high cost for blades Or CDMA Phones, the handset are low cost but the tariffs are high For machine repellants, the machine is low cost but the refills are high priced. In all these categories, annualized revenue from the product supplies are higher than the product itself Machine Repellants – low cost Machine but high priced refillsSubsidized cost for razors but high cost for blades
3What is the advantage for marketers? Consumer paying lower initial value – thus penetrate a larger marketAssured revenue stream once the product is penetratedBut,Are they pricing it right?Is there a revenue loss due to lower product price or higher supplies price?Would new brand variants cannibalise or pull consumers from competition?There are several advantages for the marketers in dual revenue stream product categories the consumer is paying a lower initial value for the product and hence, it is easier for the marketer to sell it to them Also, the revenues for marketers are assured for the life of the product itself But the could be faced with several pitfalls. Is their pricing correct? Is there a revenue loss happening as the product may be too cheap and the supplies too expensive. Further, if they launch new variants would it cannibalise their market shares or would it actually increase it
4The Roulette and Marketing!!!!! √They might lose everythingPump money behind it!!Poses faith on an assumed combinationGuesses a combination of numbersGambler√Dual Revenue Stream Marketers The roulette and dual stream marketing are quite similar to each other A gambler arrives at a combination of numbers, poses faith on an assumed combination, and then pumps money behind it and then might just lose everything All this holds true for the marketers of categories having dual revenue stream !
5And what could be the ramifications Lower product penetrationDisasterHighLowProduct PriceSupplies PriceJustRightLost Revenue OpportunityLimited usageAnd this guesswork could prove really costly! Let us plot the product price and the supplies price on a 2 dimensional grid. In case we have priced the initial product at a high price, the product would not penetrate well and even the lower supplies price would not generate enough revenues to sustain the businessIf we price the initial product too low and if the supplies are also priced low, then we are definitely losing out on a revenue opportunity If we price the product low, but supplies are expensive then the consumers would either limit their consumption of supplies or would find other alternatives In case both are priced high – the product would be a complete failure! What is required is a middle ground where both the prices are at an optimum level An optimum combination of roulette
6In effect, arrive at a best possible combination ProductSuppliesIf only there was a magic wand that could plot the two price points against consumer demand with a slider that allowed them to move around and check their optimal revenues. Something like this that would allow them to tweak around with the price point and arrive at optimum levels in order to have revenue maximisation.
7A Printer Case StudyThis is where the similarity ends between roulette and marketing situations. While in the roulette, the players need to arrive at combination based only on their judgement, for marketing there are scientific techniques that can help them predict these price points with sufficient reliability.We would be talking about these scientific techniques for predicting optimum price levels to ensure revenue maximisation for dual revenue stream products using examples of Ink Jet Printers.
8Introducing the characters Product PriceSupplies PriceDot Matrix PrintersRs. 10,000Rs. 50 p.a.Ink Jet PrintersRs. 2,500Rs. 3,600 p.a.There are three type of printers with varying product and supplies price The Dot Matrix Printers with a product price of around Rs. 10,000 and supplies expenditure of Rs. 50 per annum The Ink Jet printers with a product price of around Rs. 2,500 and supplies price of Rs. 3,600 per annum The laser jet printers with a product price of around Rs. 20,000 and supplies price of Rs. 12,000 per annum
9Research ProblemThe client HP, a leader in IJP space with a 50%+ market shareProductSuppliesSound dual stream revenue modelHigh product penetrationHigh supplies priceSmart Indians!The client – HP is a leader in Inkjet space with the highest market share They have a sound dual revenue stream model with a high product penetration and high supplies price. Unfortunately, not everything is hunky dory for them The smart Indians have found a way out of regularly purchasing expensive cartridges. They get these refilled from with cheap inks from the streets
10Given this the client wanted to Decide on price of a printer and Supplies so that:Maximize revenueensure minimal cannibalisationmaintain/improve market shareIn effect, the decision points are aboutPrice and Features for the Ink Jet PrinterOne printer or more than one modelPrice for the Black CartridgePrice for the colour cartridgeGiven this the client wanted to maximize their revenue ensuring minimal cannibalisation and improve their market share Thus, they wanted to decide the price and features for the InkJet printers,whether they need to modify the existing offerings or introduce a new model altogetherAnd also on the price for colour and black cartridges
11Generalized Solution for Dual Revenue Stream Product Pricing Research Can I charge more for the product?By adding value added features ORBy reducing the price of suppliesCan I get more revenue by lowering the price of supplies?Will I get enough mileage by reducing price ORShould I use a combination of reduced price and lower costs (by reducing yield)Qualitative research to identify opportunity areas inEnhancing value by adding featuresEnhancing profitability by dropping “performance” levelConverting value propositions into tangible choice cards (using orthogonal design)Customised Choice Modelling and Traditional Conjoint DesignRevenue Simulator for the entire product life cycleA complex problem calls for a complex design. For a typical dual revenue stream product pricing research we need to follow these steps How to add value to the initial value to justify the price increase Identify what changes can be brought upon the supplies so that their price can be dropped Conduct a quali to identify price ranges and value associations Convert the value propositions inot tangible products to be exposed to respondents Choice modelling design – could be using a combination of multiple designs like DCM / Traditional Conjoint / CBC etc. Desining a revenue simulator that forecasts revenues for lifecycle of the product
12The Research Solution Customised Choice Modelling Answering the basic “what if” questionsWhat printerWhat pricePrice and features of cartridgesTraditional Full Profile ConjointIdentify “importance” of featuresIdentify utility values associated with featuresOptimum product combinationInternal validation for the choice modellingWe adopted customised choice modelling and traditional full profile conjoint research techniques.Customised choice modeling for answering the basic “what if” questions on what kinds of printers to sell, at what price, as well as price and other features of the cartridgesTraditional full profile conjoint to answer questions on more features (over and above those captured in the choice modeling exercises). The purpose of this module was toHandle more features than was feasible for the choice modelingServe as an internal validation for the choice modeling
13Evolving the Value Paradigm Evolved the following features for printers:Speed of the printer (pages per minute)Printer Warranty (number of years)Life of the Printer (number of pages)Printer Resolution (dpi)Only two variations for the cartridgesQuantity of ink in the refill cartridgeQuality of print out (actual print out comparison)Evolving the value addition to the product, we had brainstorming sessions with the clients and evolved features detrimental to pricing. These features were:Speed of the printer (pages per minute)Printer Warranty (number of years)Life of the Printer (number of pages)Printer Resolution (dpi)For cartridges we figures out only two variations can be done. One on quantity of the ink in the refill and second on the quality of printout for which we later used actual print out. One of these was with sharp features and the other one was dull and hazy.
14Identifying Price Ranges and Value Associations HOUSEHOLDSSMBMICROBIZMEDIUMProductSuppliesIMPORTANCEQuali research conducted amongst the segments of interest:Households (owners and intenders)Micro-businesses and Small BusinessesIncluding those buying genuine and ‘refillers’We conducted a quali amongst businesses and households who are either using genuine cartridges or refilled ones. We also talked to intenders. The results were quite interesting with Households laying a high stress on the cost of Acquisition than the Total Cost of Ownership while it was completely different in the case of SMBs The quali threw up that the acceptable printer price range would be between Rs to Rs while the cartidge price range would be between Rs. 75 to Rs. 500 Printer Price RangeRs. 2,500 to Rs. 6,000Cartridge Price RangeRs. 75 to Rs. 500
15Nothing too different from our initial brainstorming session Value EnhancementsLonger warranty periodMultiple Functions – Scanner, Fax, CopierValue EnhancementsMore number of pages per cartridgeLong Lasting PrintersWe could not arrive very significantly different value enhancement from the consumers. They were largely asking for improvements in warranty periods, having more functions and longer lasting printersNothing too different from our initial brainstorming session
16Attributes and levels in the model ExamplesPrinter Attributes1.Brand5HP, Epson, Canon, Samsung, HCL2.Black Cart. PriceRs. 280, 380, 520, 660, 8003.Hardware Price8Rs. 2400, 3000, 3500, 4000, 4500, 5500, 67004.Warranty31 year, 2 years, 3 years5.Printer Life230000 or pages6.Speed10 ppm, 20 ppm, 30 ppm7.Resolution1200 dpi, 2400 dpi, 4800 dpiCartridge AttributesQualityRegular (Normal), Everyday (Inferior)Yield250 pages, 450 pages, 600 pagesGenuinenessRefill / Original / LocalTypeColour / BlackWe generated an orthogonal design with 7 attributes for the printers and 3 for cartridges. The levels for the attributes varied from 2 to 8 for printers and 2 to 3 for cartridges.
17Traditional Conjoint Product Cards There were in all 144 product cards generated for the full profile traditional conjoint model12 cards were exposed per respondent. At the analysis stage, we took mean scores for all the respondent and used these mean scores for computation of the utilities
18The final utility values plotted on Excel Pivot For ease of the client, the utility values were plotted on a pivot. The client had drop down menus and could check the associated utilities with various different product combinations
19The Customised Choice Model Created choice tasks for printersSimilarly, orthogonal design was generated for the customised choice model as well. There were about 120 scenarios for printers. We exposed about 12 printers cards per respondent.
20The Customised Choice Model Similar cards created for CartridgesThere were about 64 scenarios for colour and black cartridges. We exposed 8 scenarios per respondent
21Building a modelA multinomial logit model fitted to the results from choice tasksModel was run on aggregate data for a scenario, with alternate specific effectsMore than 20 models were analysed taking into account printer, colour and black cartridges in three segments (Homes, Microbiz and Medium Sized business)A multinomial model fitted to the choice tasks. The model was run on aggregate data for a scenario with alternate specifc effects. More than 20 models were analysed taking into account printers with low yield cartridges (black and colour), printers without low yield cartridges and for separate segemtns – Homes, Microbiz and SMBs
22Developing the Revenue Simulator Results were summed up in a revenue simulator based on multinomial logit analysisEnabled the client to examine impact on volumes, market share and revenueWas able to examine some complex scenariosFor exampleThe traditional conjoint pivot seen earlier threw up an ideal product, hwever, failed to predict revenue across the life cycle. Further, the competition is likely to follow suit and predictions were required building in those scenarios as well.A revenue simulator was created based on mulitnomail logit analysis and this enabled the client to examine impact on volumes, market share and revenues for the product life cycle.It allowed us to examine some complex scenarios like:
234 sheets for the client with minimal clicks Revenue SimulationIncrease H/W PriceCompetition reaction20% drop in price of black cartridge4 sheets for the client with minimal clicks(80 sheets working silently behind)Increase the share of printer(+10%)Increase the volume of cartridges used(+10%)Hi Share as compared to refills(30%)Less money per transaction(-20%)Net gain in revenues over 44 months(+20%)Revenue shareShift in market share
24Revenue Simulator Listed down assumptions E.g. Printer sales are not seasonalPrinters have a life of 44 monthsAssumptions SheetAllowed the client to create three scenarios.Current market scenario and the printer that they would like to introduce.Input sheet
25Revenue Simulator “Test” models in actual marketplace. Conduct what-if analysisAggregated segments to view the entire market in one goResult SnapshotFor the 3 scenariosPrinter SharePrinter Volumes (for the current year)Hardware Revenue (for the current year)Cartridge Volume (Next 44 months)Cartridge Revenue (Next 44 months)Detailed Revenue Simulation
26EndnoteSimple problems may require complex designs but they need to offer simple and workable solutionsA research is effective only when it is utilisedClients need not get lost behind complex mechanisms and make use of it to the extent possible
27Client’s citationIn the words of Abhijit Patwardhan, Director – Marketing, Asia Pacific and Japan, HP Asia Pacific Pte Ltd.“It is a very powerful tool for us to run financial scenarios and market simulations. Partially, we applied our business feel onto it. The volumes turned out to be lower than forecasted by a small margin (15%). The project still delivered on our estimates and is being deemed a success.”
28Portability of the tool As more and more marketers move into “servicing” clients than selling “products”, the need for optimum pricing research would only growThis is probably the most complex example for dual revenue stream product categoriesThe other categories would not have as many features and hence, lesser choices for the consumers
29The complexity for other categories may be less … but the fun would still be there Thank You!