Back to School Shopping

We hate to say it, but many start back at school in a few weeks. The question is, have you started your back to school shopping? We’re not just referring to school supplies, but also apparel, shoes, bags and new gadgets. We’re here to recommend some items that you must buy, to really feel like it’s the start of a new school year!

A Pair of Shoes

Nothing says “I’m ready” like buying and wearing a new pair of shoes. If you’re going back to school, then a nice pair of lifestyle shoes is probably what you’re looking for. Nike, Adidas, Jordan and Converse are all known for their lifestyle shoes and you’ll have a sweet pair of shoes to sport.  If you’re the one teaching and going back to work, then splurge on a pair of comfortable, dressy shoes.

Backpack/ Book bag

For some it will be a heavy duty knapsack and for others, a shoulder bag (if you’re a teacher, usually). 

New Laptop

Windows or Mac? Well, what are you interested in? What are you going to school for? What sort of work will need to be done on your laptop? Those are all questions to take into consideration, but you know that! 

Exploiting New Markets in the Growing Economies

Blueprint a new business model, focusing particularly on the customer value proposition

A business model consists of four components, key resources (brand and people, for example), key processes (R&D, for example), a profit formula, and the customer value proposition (CVP).

Within these four, there are a range of levers, including distribution chain, revenue model, which can be one where the customer pays one time up front (purchase model) or month by month (leasing model).

Successful entrepreneurs have long found success when developing new products by conceiving of offerings that are somehow more convenient, affordable, accessible, or simpler than anything that currently exists. In developing markets, we’ve found that affordability is key, of course, but equally critical is improving access.

Take ChotuKool’s potential customers. Their low incomes and living circumstances—for example, they changed residences frequently—meant that affordability and access were important barriers to consumption. In blueprinting its new business model for ChotuKool, Godrej started with price first, as the key that would unlock the access issue, and then worked toward the cost structure, and finally the processes and resources required to develop and distribute the product.

Where the growth lies

It’s no secret that most companies are looking to emerging markets for future growth. According to the Economist, Western multinationals expect to find 70% of their future growth there—40% of it in China and India alone. But there’s no longer a simple entity called ‘emerging market’. Markets are changing and a key to growth is learning how to create opportunity from those changes.

In trying to transplant their domestic business models, companies end up slashing margins or confining themselves to the higher-income segments, which aren’t big enough to generate sufficient returns.

One often overlooked opportunity is targeting a certain group in the huge middle market of consumers. These consumers are stuck in the limbo that our colleague Clayton Christensen calls “nonconsumption”; many of their basic needs are being met very poorly by existing low-end solutions and they cannot afford even the cheapest of the high-end alternatives.

The story of a little red refrigerator called ChotuKool shows the powerful opportunities for companies when they target this frustrated segment of the middle market. Chotukool was developed by Indian multinational Godrej & Boyce, with our help at Innosight.

Godrej is a diversified manufacturer of everything from safes to hair dye to refrigerators and washing machines and was faced with a pressing growth dilemma: traditional compressor-driven refrigerators had penetrated only 18% of the Indian market because of the high cost to buy and maintain them. But rather than developing a stripped-down version of a standard refrigerator—offering “less for less”—the company ended up creating a category-defining product by fundamentally reconceiving its business model.

The process they followed consists of three basic steps: identify an important unmet job a target customer needs done; blueprint a model that can accomplish that job profitably for a price the customer is willing to pay; and carefully implement and evolve the model by testing essential assumptions and adjusting as you learn.

Identifying the “job to be done”

A small team at Godrej & Boyce was assembled and assigned to conduct detailed observations and open-ended interviews to help identify the job to be done for that untapped market. The semi-urban and rural people the team observed typically earned 5,000 to 8,000 rupees (about $125 to $200) a month, lived in single-room dwellings with four or five family members, and changed residences frequently. Unable to afford conventional refrigerators in their own homes, they were making do with communal, usually secondhand ones.

The shared fridges weren’t meeting these people’s needs very well, but not for the reasons one might expect. The observers found that they almost invariably contained only a few items. Their users tended to shop daily and buy small quantities of vegetables and milk. Electricity was unreliable, putting even the little food they did want to preserve at risk. What’s more, although they wanted to cool their drinking water, making ice wasn’t a job for which these people would “hire” a refrigerator.

So why would this group of consumers “hire” a refrigerator? The team concluded that what this group needed above all else was to stretch one meal into two by preserving leftovers and to keep drinks cooler than room temperature. Clearly, there was no reason to spend a month’s salary on a conventional refrigerator and pay steep electricity prices to get the simpler job done. Nor was the solution a cheaper conventional fridge. The unmet job would require an entirely new product, supported by a new business model.

Strategy of the Pricing Puzzle

In tough economic times, it’s natural to wonder if you should cut prices. But what if we told you that if you were to increase your pricing by 1%, your profitability would skyrocket. Just 1%!

Of course, before you even think about raising prices, you need to think sales. Do you have a sales force that can sell a 1% increase? What differentiates you from your competition? Does your shop sell on price? Do you do know how to cross sell?

1% reduction in fixed costs improves profitability by 2.3%
BUT
1% increase in pricing can boost profitability 11%

How have you determined your pricing strategy? Can you define it? Or is it like looking into a crystal ball hoping the answer will become clear?

Developing your product or service offering requires detailed thought and planning. A critical piece of that planning is deciding how you should price your products and services. The pricing strategy you choose can dramatically impact the profit margins of your business. What equipment do you have, what are your capabilities, what do you pay for the equipment and what do you pay your employees. Are you too high, too low, what does the competition look like? Have all the hundreds of variables been accounted for?

Pricing is the only part of the marketing mix that is revenue generating. What’s the right approach for your product?

Here are six different pricing strategies. Does your company embrace one of these or multiple? Oftentimes, the product or service you’re offering will determine which strategy you use.

The six strategies for pricing

1.   Competition Based

2.   Loss Leader

3.   Penetration Strategy

4.   Premium/High End

5.   Cost-plus

6.   Predatory

This can be a slippery slope in our business. It is challenging to for a small business to maintain because it provides very narrow profit margins that make it hard for the business to achieve enough momentum to grow. Think of this strategy as rock-bottom pricing.

Competition Based

Striving to meet and or beat the prices your competitor is charging.

A competition based pricing strategy focuses solely on what the competition is charging. 

It is:

•challenging for a small business to maintain

•provides very narrow profit margins.

Think of this strategy as rock-bottom pricing.

Loss Leader

Give it away to get more in the future

Historically, printers have done “pro-bono work” to win customers. Make sure you look at the entire picture, before aligning yourself with a freebie client. Remember all of your competition has been asked to do the work for free also.

Penetration Strategy

Increasing the value to your customers, build loyalty and enter the market.

What else can you offer your customer? Value-added services can help secure the relationship and build your brand loyalty – think storefronts, fulfillment, promotional premiums and database management.

Unless you are “blood brothers” with your customers, loyalty in the business is a very difficult thing capture.

Offering value-added services can help secure the relationship and build your brand loyalty – storefronts, fulfillment, promotional premiums or database management.

Premium – High End

Having buyers know that your expensive product or service warrants the additional cost associated can be accomplished, but takes time and lots of marketing.

Exceptional reputation, quality, and distinction. In order for you to implement this type of pricing strategy, you must have built your brand recognition to a high end, premium level.

“Cost plus” strategy:  Full cost and Direct cost

Two types of “cost plus” pricing:

Full cost pricing includes both variable and fixed costs and adds a % markup.

Direct cost pricing uses the variable costs plus a % markup. Usually only used when competition is high as it usually leads to a loss over time.

The “cost plus” pricing strategy basically takes your costs and adds an amount of markup to it. There are two types of “cost plus” pricing:  full cost pricing and direct cost pricing.

Predatory

A carnivorous cousin, Deinonychus, about the size of a man, leaped on its prey, wrapped its long arms and three-fingered hands around it, and kicked it to the death with sickle-shaped toenails.

When tailoring the strategy you choose, keep in mind all of these the influences that will affect your bottom line and pricing strategy. A lot of these circles can influence both each other as well as pricing.

A puzzle is not complete without all the parts. Be systematic and strategic in your decisions.

Do not set the pricing and then just forget it. All pricing strategies can make sense one time or another (except predatory!), but none alone are always sufficient.

Your goal must be to stay one step ahead of your competition.

Your pricing decision doesn’t have to be all of one type, none of the others. And, it should change and evolve over time, as your competition and market conditions change. The pricing of your products should be something you continually evaluate and regularly address.