The P Word

By Steve Marzio

God love Business School and MBA programs, they serve a purpose.  You learned the four P’s role in the marketing mix. You went through simulations and competitive gaming.  The cases – ahh the cases.  No matter how realistic those learning exercises seemed, you never really got your hands dirty in ways that you will in real life situations. For a practical example, here’s a case study that may sound all too familiar to anyone in marketing or sales for a challenger brand …

Case of The Dreaded P (aka The Walk of Shame):

A year ago, you launched that whiz bang Product of yours after years spent existing in only powerpoint and excel files. Product development came through and launched that gizmo with only one product delay.  Your sales efforts landed some key shelf space (or “Pdistribution” as my business school professor liked to call it) in some national chains.  You reviewed, edited and executed some killer agency Promotions to support the launch of the product which helped give it a nice initial spike of sales in the marketplace.

And now it is a year later, sales have NOT continued to climb, you look at your ad budget and don’t see one and wonder what the next move is.  You know what the next move is, you just don’t want to go there.  In dreaded fashion, you crack that door open…..

You’re down to the last P.  The Dreaded P.  The P that makes you feel squeamish and dirty inside.  It’s excel’s version of the Walk of Shame.  You open a new file and begin the exercise.  What if I price my product lower?  How much lift should I assume?  Well, let’s try a sensitivity analysis here.  A 10% lift yields this much extra revenue and does this to my profit.  A 20% lift, a 30% lift and so on.  At what point does a price move (it’s hard to even type the words) make sense?  Can I really make it up in volume like my slick sales guy keeps telling me?  I think I know what he is paid on, better not listen to him.  Did the retailer really use the word “delist?”  I severely doubt that.  What will the VP marketing think of my when I even present this case?  I know, she’ll think I’m a complete marketing failure and she will wonder whether she should still support those recruiting efforts from my Top Tier B-School.    I’m spiraling now.  Get it together.  Simplify, simplify, what does this boil down to?

I need to make my numbers and see no other way.  Let’s try a 50% lift to see what that does….

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Editor’s note:

The “Dreaded P” example above actually highlights the secret 6th entry in the 5 sure-fire ways to get Retail Leverage. It is kept hidden behind glass with a “Break only in case of emergency” sign posted above.  The reality is though – if you aren’t using one of the 5 ways to get Retail Leverage, your only resort is #6 – Price.  Good luck selling that to your organization.  By the time you get to this point your hand is likely to be forced by your buyer.  Otherwise, de-listing is as close as the next reset.  In the rearview mirror some of those 5 Retail Leverage strategies don’t look quite as expensive anymore.

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  1. [...] If you don’t have something unique / different / better, then be prepared to move to the 6th, rarely spoken of, painful way to get Retail Leverage: Price. [...]

  2. [...] As I wrote in an earlier article, “THE DREADED P” the price lever can often be an embarrassing one for any Top 20 educated MBA marketer.  However, the problem isn’t in figuring out what the “right” price should be on a product, the problem is that marketers don’t embrace enough retail realities when devising their pricing strategy.  In fact, too often, pricing strategy is often left to just pricing and no strategy.  In other words, discounting levels, frequency and timing of promotions are more of an afterthought, a bad afterthought when it comes to your product’s selling price. Put simply, everyone loves “the deal.”  So utilize this consumer and retail psychology to your advantage.  Marketers, hear me now, “Embrace HI-LO!”.  I mean really embrace HI-LO from the beginning and you will sleep better at night, have better pro-formas and most importantly, retailers will love you (and so will your sales team if you care).  Let’s take a look at 5 examples on how to embrace HI-LO and to develop a successful pricing strategy in selling a $99 product: [...]

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