Question

‘Online Educational Systems’ (Online) has developed a package to deliver integrated curriculum and face to face group learning, for all levels of students around the world, due to the Covid-19 pandemic. Online has asked you to research customer preferences and to recommend a pricing policy. There are limited price differences relating to the timing of classes in the Northern Hemisphere. However, for Southern Hemisphere classes running a class at or below 45 students (normal class size is 50) costs significantly more for Online to run the class.

a. In addition to customer preferences, what information would you like to gather before recommending a pricing policy? Explain why each item you list is relevant.

b. Explain why it is important to understand customer preferences before investing in the infrastructure to run the system.

c. Is the need to consider customer preferences different for this organisation than for another type of organisation? Why or why not?

Answer 1

A Pricing policy is a standing answer to recurring question. A systematic approach to pricing requires the decision that an individual pricing situation be generalised and codified into a policy cover­age of all the principal pricing problems. Generally, Pricing policy refers to how a company sets the prices of its products and services based on costs, value, demand, and competition.

(a)

There are 5 Cs of pricing policy which are considered before recommemding a pricing policy:-

(1.) Cost -- This is the most obvious component of pricing decisions. We obviously cannot begin to price effectively until we know our cost structure inside out. It includes both direct costs and fully loaded costs, such as overhead, trade discounts, etc. And also it means knowing those cost structures for each item or service we sell – not just on a company-wide or product-line basis. Too often, managers make pricing decisions based on average cost of goods, when in fact huge margin variations exist from item to item.

Traditionally, businesses have priced their goods and services based on their costs. But cost is often irrelevant in the buying decision of the purchasers. They never even know the cost. Understanding this basic, yet all important principle, is essential to determining the real profit opportunities in our business.

(2.) Customers -- The ultimate judge of whether your price delivers a superior value is the customer. The information you need to know is:

• What is our customer’s expected range — the highest and lowest price points?
• Within that range, what is our customer’s acceptable range – the highest or lowest he or she is willing to pay?

(3.) Channels of distribution -- If you sell through “middle men” to get to the end-users of your products or services, those intermediaries affect your prices because you have to make their margins large enough to motivate them. You must also consider the expenses that intermediaries add. Make sure these third parties add value to the relationship between you and your customers.

(4.) Competition. This is the point where managers often make fatal pricing decisions. Every company and every product has competition. Even if our products or services are unique, make sure that we think carefully about our competitors from the buyer’s point of view (the only opinion that matters).

(5.) Compatibility. Pricing is not a stand-alone decision. It must work in concert with everything else we’re trying to achieve. Do we believe a fast-food hamburger chain? Is our pricing approach compatible with our marketing objectives? With our sales goals? All these need to be answered for the compatability.

And if we talk about the customer preferences, following are the steps which create a value based pricing policy:-

• Understand our buyer personas. Buyer personas are fictional characters that represent our ideal customers. They help us refine our marketing activities and lead to an understanding of our customers’ willingness to buy at a given price. There’s plenty of literature out there on defining our buyer personas, so we won’t go too deeply into that process. Yet, in terms of pricing and packaging, understanding them helps us to customize and develop our product for the valuations of those customers and price accordingly.
• Survey and talk with the customers. Once we’ve identified our buyer personas and understand them how do we figure out how much they’re willing to spend, or what exactly they want their plan to be for your product? The key to creating optimized prices and measuring the value you’re providing is to survey the customer base and collect hard data. We already should be talking to our customers about everything else, there’s no reason pricing should be an exception. We’ll find customers truly appreciate the conversation, because it’s directly related to providing them the right amount of value for how much they’re paying.
• Analyze the data and pick the prices for the product. Now we’ve collected some quantitative and qualitative data, we can analyze it and create value-based pricing that appeals to the target segments. Pricing is a process, and while looking for one perfect price is like trying to find a needle in a haystack, the data will generate an optimal price range that narrows it down significantly. We’ll see patterns emerge (I promise), especially when segmenting this data by persona.
• Communicate the value to the customers. Prices and value are only as good as how we communicate them. Fortunately, collecting price sensitivity data not only determines a more accurate price for our product, it also allows us to provide great customer service. We’re further developing that customer relationship and assuring customers that we’re providing the value we claim in our prices.
• Create the right focused pricing policy. While it’s definitely imperative that you communicate the value of your product to the consumer, it’s equally as important to accurately convey that value to everyone on your team. The individuals on your team, from the sales team to developers, have just as much power over your profitability as your customers. If the company culture isn’t unified around the value and pricing of your products, then none of the effort put into generating data, conducting a thorough analysis or choosing your price points will maximize revenue or help your business grow.

(b)

Anticipating a customer's needs is as important as reacting. Knowing and understanding your customer's preferences before they buy allows you to create an even stronger experience. Following are the important points which are to be considered to know our customers in a well manner:-

(1.)Track Customers’ Real-Time Behavior -- To do this, a business needs to be prompt and proactive in its approach. It needs to anticipate the customers needs to serve them on all platforms even before the requirement is actually placed. And all this can only happen when you have a tool that gives you a peep into the real-time behavior of the customers. Experts suggest investing in a customer relationship management tool (CRM) that provides an in-depth analytics of the customers’ activities. One of the best instances to corroborate this is CRM’s email marketing functionality.

(2.) Invest on Social Media Customer Engagement -- Reason being that reports like IBM CEO Insights has stated that consumers are active on social media channels for no less than 6 hours a day. This clearly explains the indispensable role that social media plays in shaping and influencing the opinions of the consumers. In such a scenario, it becomes essential for every business to invest exhaustively on social media engagement. So frame strategies to engage with your target audience and customers on all social media channels as they are clearly the best place to reach them.

(3.) Focus on Customers’ Personal Tastes and Preferences -- Nurturing our customers with informative contents about our product/service is good. Sometimes facilitating to the generic interests of the customers serves a great purpose too. It gives the impression of how attentive we are towards our customers and brings our buyers inches closer to us.

(4.) Identify the different categories of your Customers -- Tagging them together in the same group only leads to generic cross-selling campaigns that do not generate any fruitful results. It’s important to understand the different parameters on which we can segregate our customers. Let’s say – the type of products/services they buy, frequency of purchase, geographic location of the customers and so on.

(5.) Leverage Customer Service Interactions -- This is one of the best times to get a peep into the customers psyche. So, we need to frame a questionnaire and hand it over to our customer service representatives. On every occasion when our customers contact our service representatives, they can ask queries about the customers likes/dislikes in relation to the product or service usage.

(c)

(1.) Do not price your course based on its length -- Many online instructors think that in order to charge a high price for their course, they need to create a very long course. This is absolutely not true. The length of your online course should not be a determining factor in setting your course price. Price your course based on the value of the content, not the length of the content.

(2.) Take a look at our competition -- Some people will tell you to take a look at the prices of competing courses and then price yours somewhere in the middle. This is bad advice. Price our course based on the value you provide to our students through our training and support, and the value of the outcome we help them achieve. We donot choose our course price based on the price our competitors are charging for their courses.

(3.) Quantify the value of the outcome our students can achieve -- Another technique that works well is to actually quantify the value of the outcome we teach our students to achieve. If we’re going to help our students save money, tell them how much. If we’re going to help them save time, tell them how much. By quantifying the value of the outcome we help them achieve, position the price of our course as a no-brainer. If we taking our course is going to help someone earn a promotion at work or get a specific job, for example, that is an outcome that can definitely be quantified.

(4.)  Test different price points -- This takes time to do, but it can be a great way to determine the optimal price for our course. Testing different price points to see how they each affected his sales was exactly what Greg did with his LSAT course. Starting with a price of $29, he gradually increased his price over time. After several increases, he eventually determined that $389 was the optimal selling price for his course.

(5.) Consider the cost of our customer’s alternatives -- If not by taking our course, how else would someone learn to achieve the outcome our course helps them achieve? How many months or years of trial and error would it take? How much money would they have to spend to hire a coach or consultant to help them? How much would it cost them to fly to another city to attend a seminar about our topic? How much would it cost them to take a similar course at a local college or university? All these questions need to be answered.

All the above points will be considered for pricing policy for this particular organization.