Captive Pricing and Product Design

Disclaimer: This post is based on a simple observation and a basic idea. There's a high probability that this disclaimer will actually be longer than the following post. And yeah, my heartfelt thanks to Allout.

A fundamental method of pricing is known as captive pricing. Simply put, captive pricing is a method wherein the companion product is priced low and supplies are priced high. For example, Mach 3 sells its razor (plus 1 blade) at Rs. 99/- to the first time buyer while a single blade alone costs Rs.82/-. Essentially, the initial low (potentially loss making) price of the razor stimulates future sales of blades (which provide a high margin).

Yesterday, the ever increasing threat from mosquitoes forced me to borrow an Allout mosquito repellent from a friend. Allout is a typical example of captive pricing - for a first time buyer, the machine is given practically for free. The idea is to make profits by future sales of refills. However, this was a unique case (or at least a first for me). What I believed to be an Allout-kit turned out to be an Allout machine with a Mortein refill. If I were allout, I would dig a hole and bury myself in it and if I were mortein, I'll simply stop producing machines and reduce the selling price of my refills.

No prizes for guessing the lesson from this story then: Captive price your product only if you can be the only beneficiary from future supplies to the product. In the story above, Allout could've (and should) patent the design and dimensions of its machine to prevent loss of future sales to scavengers. However, in businesses where products are captive priced and service the main revenue generator, this can be a much bigger problem. How do you deal with it? The solution isn't very straight-forward...happy thinking. :)

Enterprise 2.0: An HR Manager's Blog Entry

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Hi! Let me introduce myself. I am Raghu, Co-founder and President-HR of WebNext Technologies. Over the last seventeen years, I have worked in the HR domain with a start-up called Google which is now an on-line behemoth, the consulting major McKinsey and am now leading the HR department for my own venture. Over these years I have seen methodologies change, technologies obscure and operations re-invented. However, what has remained unchanged has been my aim as an HR manager. My goal is to maximize my company’s profitability by increasing productivity of its most valuable resource – people.

Changing face of HR

Increasing employee productivity is a challenging task and I have adapted and pioneered innovations in this regard at every stage in my career. I joined the HR profession when companies had fixed working hours of 9-to-5. This was the time when people struggled to find required information for their work and there was no synergy within the company. It was also the time when finding that one right candidate needed me to screen a hundred applications.

Work environment across organizations has been changing since then. In my first company I introduced the flexi-work-hours concept. Then I saw concepts like work-from-home and work-on-the-move becoming popular. Balance scorecard and management-by-objective were introduced and building a favorable corporate image became all the more important.

The Disruptive Technology: Web2.0

Things have been evolving but never as drastically as they have in the last four years. Terms like Enterprise2.0 and online-social media networking which were unheard of have become commonplace and have changed the way people and businesses communicate and collaborate.

Being a technology-enthusiast, I have experimented with Web2.0 from the very beginning. I realized that it had instant and lasting appeal because it catered to two basic human needs – information sourcing and sharing. It was a tectonic shift from all existing media which facilitate only one-way communication. In fact, I was among the first few users of Friendster, the oldest on-line social network based on Web 2.0. This and many other were among a list of web services I experimented with, to get a greater understanding of the emerging trends. In the meanwhile blogging became popular, micro-blogging arrived, and social and professional networking thrived. Being a man of HR, I wondered how Web2.0 could change the enterprise - how it could affect employee productivity to generate more profits for the organization.

Implementing Enterprise-Social-Networking

Today, extensive use of Web2.0 has helped my organization flourish. I have implemented enterprise-social-networks in two forms – internal and external. The internal social network serves the primary purposes of innovation, knowledge sharing and building personal relationships among employees. The external social networking helps us in connecting to our customers, building a positive corporate image, problem solving, and recruitment.

Internal

Internally, we have deployed our own social network using Microsoft OfficeTalk 2010. With all features required in a social network, it facilitates personal bonding between employees. Our internal Corporate Blogs help knowledge sharing between top management and other employees. I personally write a blog on HR practices and get instant feedback which helps me in policy formulation. Our ingeniously developed Corporate Wiki provides an easy-to-use environment for subject-matter experts to publish their interpretation on any subject. It has the features for forming interest-communities which facilitates an exchange of ideas. This gives my company the synergy for innovation – employees freely share knowledge and learn from their peers. Creating web pages for each employee has facilitated the change from top-down appraisal to continuous 360° appraisal where project-mates regularly update their evaluation of peers.

External

Our external social network includes a Corporate Blog and Social Media pages for sharing information and answering customer queries. To restrict negative publicity, we have a team which monitors third-party writings on social media sites. This has helped me build a positive corporate image. As an HR person, I am thrilled by the prospects of recruiting via our integrated external and internal social network. Referrals are now made on our Microsoft Office Talk Recruitments page by posting Linkedin profiles of the candidate. We also use Linkedin for profiling and locating experts who are globally dispersed. Their services are then sought on a part-time project basis thereby helping us in high-level problem solving and still maintaining a lean organization.

Signing Off!

Enterprise social networking has changed the way business was done not-so-long ago. It has made it easier for me to make people more productive and the organization more profitable. I believe that endless possibilities still lie untapped and well-directed efforts towards realizing them must be made.

Anish Sinha, Angshuman Ghosh, and Hitesh Mathur

Twitter: Lessons to learn from Facebook and Orkut

With almost a 100 million users and going strong, twitter has been a phenomenon in the last couple of years. Although, unlike Facebook and other social networking websites, twitter cannot boast of the same penetration (read: regular users), it has won a large following of twitterati who tweet more than they speak.

As a regular user of twitter, I have been increasingly irritated by the Blue Whale (too many tweets error) on screen two out of ten times I visit twitter. It reminds me of the "No Donut for you" that frustrated me out of Orkut. Has it ever happened on Facebook? No! That's lesson number 1 for twitter - if you're down for a minute, you'll be down and out in no time. For a website which banks on the randomness and pace of human thought, being available when the thought strikes is all the more important.

The other problem with Orkut was sharing. Sharing on Orkut was extremely complicated and difficult - at least then, no idea about how it is now. Twitter suffers with the same problem. Sharing pictures on twitter is not intuitive like it is on Facebook. Until only recently, sharing links was also an major issue owing to the 140 character limit. Fortunately, with the web link shortening tool, this has now been taken care of. That's lesson no 2 - make sharing easier.

In the cyber world, simplicity is the only way. With the advent of tumblr and other similar websites, for twitter, simplifying its core competency - thought sharing - is but a fight for survival.

Social Media Marketing Under Check

In the race for visibility online and seeking presence on all sorts of channels, companies need to understand the importance of keeping under check the relevance, correctness and workability (for the lack of a better word) of uploaded content on the internet.

Unlike the old channels of media, the internet has an infinite memory . What was uploaded 5 years ago has a high probability of showing up in a search today. The message that you wanted to deliver in those times might be completely out of sync with what you wants to deliver now. If your consumer is conscious enough to check the date of upload, lucky you! otherwise god save you! All the effort and money that you put in to deliver that "new message" has gone down the drain. The solution is simple enough - just like you take off those TV Commercials when they become stale, take off all content from the internet that has lost relevance.

Coming over to workability - what does it mean? To put it simply, ads on youtube should not hang mid-way, nor should a link you posted on facebook or twitter be broken at any time (unless you took it out yourself, in which case, better remove the concerned post from facebook too). If the consumer wants to know about you, please don't make it difficult for her.

Because of its reach social media monitoring is an extremely difficult proposition. But effectively cutting down on old, irrelevant and dilapidated (read opposite of workable) content can not only simplify monitoring but also ensure that your customer gets the right message.

Does Telemarketing translate to sales?

“Hello sir, I’m speaking from ABC. I want to tell you about this scheme made especially for you...” – an average person receives at least one such call per day. Also, on an average, the chances - that the person will listen no further and disconnect the call with “Sorry, I’m not interested.” - are pretty high. Telemarketing over the years has persevered as one of the most persistent and hated marketing methodologies. Consumers love to hate it and yet marketers love to stick to it.
For the marketer, the advantages of telemarketing are that it is direct, interpersonal, delivers immediate results, has quantifiable outcomes and most importantly is very cost effective. No wonder then that for the marketer, telemarketing as a method to boost sales has withstood the test of time. Only recently, the impact of telemarketing was seen in the hugely successful telemarketing campaign of Barack Obama.
Then why do consumers hate telemarketing? Is the concept in itself flawed? No. Telemarketing evolved as a mutually beneficial and convenient form of product/services advertising and sales. However, with too many firms engaging in “unsolicited” telemarketing, in spite of telemarketing’s inherent convenience to the consumer, it has proven detrimental for the concept as a whole - a classic case of ‘too many cooks spoil the broth’.
Yet, it is not beneficial for a firm to increase sales by pulling out of telemarketing. It has been statistically proven that irrespective of the number of firms, telemarketing as a practice boosts sales. It is a Nash Equilibrium, wherein, even if a firms pulls out, it only ends up reducing its sales and boosting that of its rivals. The firm’s economic pay-off is further lowered by the fact that the consumer perception is negative about telemarketing and not for individual firms.
Thus, we firmly conclude in favor of the use of telemarketing to boost sales.
Anish Sinha & Hitesh Mathur

Tata Docomo and repositioning of competitors

Tata Docomo emphasizes on "Doing the new". It has a very clear positioning strategy. It wants to be perceived as the brand which believes in constant innovation. In fact, with its per second billing technology, it revolutionized the mobile operators market and garnered huge market share. When the others followed, Tata Docomo featured a new advertisement with the message, "What we do, the others follow"...perfect! Spot on with its positioning. Also, they tried to reposition their competitors as followers - the laggards.

However, they missed out on an opportunity to attack their larger competitors. Yes, their larger competitors followed; they responded to lower calling rates - 50p/sec,per second billing, etc. This is what Tata Docomo could've exploited to a much larger extent than just "Do the new, others will follow". They could've repositioned their competition as fleecing the consumers. How about an ad which conveyed the message,"If we can charge our consumers lower, we don't keep high call rates. We don't wait for someone to show the consumers the reality."

This could have delivered a major shock to the reputation of Airtel, Vodafone and Idea. Airtel would be perceived as "Express yourself (at a higher cost)", Vodafone as "Happy to help (if you pay us more)" and Idea as "What an Idea Sirji!(Charge the customers more.)". The large competitors would have taken ages to build up their brand image again and Tata Docomo could have exploited this opportunity to gain incremental market share.

Sell value-additions and not your product

What does the marketer sell? Should she sell the product - How well can the product perform its task? At times, yes, but mostly NO.

Spoilt for choice, the consumer of today assumes that the product being sold performs its basic function and does it well. What exactly does a consumer want from a product is a tough question; but if you're a marketer and you're trying to sell your product/service only on how well it works, you better watch out!

Lets try and understand this using a simple example - suppose you want to sell a watch. You cannot expect to convince a customer to buy your watch by telling her how accurate the watch is. The customer has already assumed a lot - if it's a watch, it has got to be accurate. No wonder we don't find any TV commercials proudly proclaiming how accurate their watches are!

Take the case of mobile phones - how often do you expect to make a sale if you tell your consumer that your cell phone has the best voice quality or that it sends accurate SMSs? (Will the launch of 3G with better voice quality change this? I doubt.)We can go on adding products here and the list will be unending. Try selling a refrigerator which "cools well" or a washing machine which "Gives you clean clothes" or a pair of shoes that "protect your feet from getting wet/dirty" - I'm sorry but the chances that anyone will buy your product are pretty bleak.

So, how does one market? What does one sell if not the product? A shrewed marketer sells only what the customer wants. You don't sell a watch, you sell style or you sell elegance or you sell perfection (remember Roger Federer and Rolex). You don't sell mobile phones - you sell portable cameras or music or well...style again. It was simple - and so obvious, wasn't it? Ahem...why don't you try selling a refrigerator for me (and please, a fridge can never be a family member).

However, this is not a universal phenomenon. There are products and more typically services where the consumer values the basic requirements more than the value-added-functionality. Take the case of a car - "Our car drives well and is reliable"....hmmmmmm interesting proposition, I might consider.

The idea of not selling the product but something else is known to anyone who has read her marketing basics but in a different regard - positioning. Also, benefits segmentation is another close approximation to the idea. However, they are theoretical concepts which don't clearly convey how to sell a product.

So how do you do to sell your product? Simple. Don't sell your product - sell value additions.

P.S: I had written this blog before being introduced to the concept of the three levels of a product - core, expected and augmented. So, if the post does not sound very new and intriguing to you, please accept my apologies.