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The Great Marketing Roulette

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1 The Great Marketing Roulette
Ashutosh Sinha, IMRB International Balendu Shrivastava, IMRB International Good morning! The first paper of the day today and we would be talking about what we call as the great marketing roulette 

2 What is common in . . . Non Digital Cameras - low cost of cameras but high cost for films CDMA Phones - low cost handsets but high tariffs Let 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 refills Subsidized cost for razors but high cost for blades

3 What is the advantage for marketers?
Consumer paying lower initial value – thus penetrate a larger market Assured revenue stream once the product is penetrated But, 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 

4 The Roulette and Marketing!!!!!
They might lose everything Pump money behind it!! Poses faith on an assumed combination Guesses a combination of numbers Gambler 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 ! 

5 And what could be the ramifications
Lower product penetration Disaster High Low Product Price Supplies Price Just Right Lost Revenue Opportunity Limited usage And 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 business If 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 

6 In effect, arrive at a best possible combination
Product Supplies If 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. 

7 A Printer Case Study This 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. 

8 Introducing the characters
Product Price Supplies Price Dot Matrix Printers Rs. 10,000 Rs. 50 p.a. Ink Jet Printers Rs. 2,500 Rs. 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 

9 Research Problem The client HP, a leader in IJP space with a 50%+ market share Product Supplies Sound dual stream revenue model High product penetration High supplies price Smart 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 

10 Given this the client wanted to
Decide on price of a printer and Supplies so that: Maximize revenue ensure minimal cannibalisation maintain/improve market share In effect, the decision points are about Price and Features for the Ink Jet Printer One printer or more than one model Price for the Black Cartridge Price for the colour cartridge Given 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 altogether And also on the price for colour and black cartridges 

11 Generalized Solution for Dual Revenue Stream Product Pricing Research
Can I charge more for the product? By adding value added features OR By reducing the price of supplies Can I get more revenue by lowering the price of supplies? Will I get enough mileage by reducing price OR Should I use a combination of reduced price and lower costs (by reducing yield) Qualitative research to identify opportunity areas in Enhancing value by adding features Enhancing profitability by dropping “performance” level Converting value propositions into tangible choice cards (using orthogonal design) Customised Choice Modelling and Traditional Conjoint Design Revenue Simulator for the entire product life cycle A 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 

12 The Research Solution Customised Choice Modelling
Answering the basic “what if” questions What printer What price Price and features of cartridges Traditional Full Profile Conjoint Identify “importance” of features Identify utility values associated with features Optimum product combination Internal validation for the choice modelling We 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 cartridges Traditional 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 to Handle more features than was feasible for the choice modeling Serve as an internal validation for the choice modeling

13 Evolving 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 cartridges Quantity of ink in the refill cartridge Quality 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.

14 Identifying Price Ranges and Value Associations
HOUSEHOLDS SMB MICROBIZ MEDIUM Product Supplies IMPORTANCE Quali research conducted amongst the segments of interest: Households (owners and intenders) Micro-businesses and Small Businesses Including 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 Range Rs. 2,500 to Rs. 6,000 Cartridge Price Range Rs. 75 to Rs. 500

15 Nothing too different from our initial brainstorming session
Value Enhancements Longer warranty period Multiple Functions – Scanner, Fax, Copier Value Enhancements More number of pages per cartridge Long Lasting Printers We 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 printers Nothing too different from our initial brainstorming session

16 Attributes and levels in the model
Examples Printer Attributes 1. Brand 5 HP, Epson, Canon, Samsung, HCL 2. Black Cart. Price Rs. 280, 380, 520, 660, 800 3. Hardware Price 8 Rs. 2400, 3000, 3500, 4000, 4500, 5500, 6700 4. Warranty 3 1 year, 2 years, 3 years 5. Printer Life 2 30000 or pages 6. Speed 10 ppm, 20 ppm, 30 ppm 7. Resolution 1200 dpi, 2400 dpi, 4800 dpi Cartridge Attributes Quality Regular (Normal), Everyday (Inferior) Yield 250 pages, 450 pages, 600 pages Genuineness Refill / Original / Local Type Colour / Black We 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.

17 Traditional Conjoint Product Cards
There were in all 144 product cards generated for the full profile traditional conjoint model 12 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

18 The 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

19 The Customised Choice Model
Created choice tasks for printers Similarly, 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.

20 The Customised Choice Model
Similar cards created for Cartridges There were about 64 scenarios for colour and black cartridges. We exposed 8 scenarios per respondent

21 Building a model A multinomial logit model fitted to the results from choice tasks Model was run on aggregate data for a scenario, with alternate specific effects More 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

22 Developing the Revenue Simulator
Results were summed up in a revenue simulator based on multinomial logit analysis Enabled the client to examine impact on volumes, market share and revenue Was able to examine some complex scenarios For example The 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:

23 4 sheets for the client with minimal clicks
Revenue Simulation Increase H/W Price Competition reaction 20% drop in price of black cartridge 4 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 share Shift in market share

24 Revenue Simulator Listed down assumptions E.g.
Printer sales are not seasonal Printers have a life of 44 months Assumptions Sheet Allowed the client to create three scenarios. Current market scenario and the printer that they would like to introduce. Input sheet

25 Revenue Simulator “Test” models in actual marketplace.
Conduct what-if analysis Aggregated segments to view the entire market in one go Result Snapshot For the 3 scenarios Printer Share Printer Volumes (for the current year) Hardware Revenue (for the current year) Cartridge Volume (Next 44 months) Cartridge Revenue (Next 44 months) Detailed Revenue Simulation

26 Endnote Simple problems may require complex designs but they need to offer simple and workable solutions A research is effective only when it is utilised Clients need not get lost behind complex mechanisms and make use of it to the extent possible

27 Client’s citation In 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.”  

28 Portability of the tool
As more and more marketers move into “servicing” clients than selling “products”, the need for optimum pricing research would only grow This is probably the most complex example for dual revenue stream product categories The other categories would not have as many features and hence, lesser choices for the consumers

29 The complexity for other categories may be less … but the fun would still be there
Thank You!

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