What to ask when setting your prices

News & Observer

Published Sun, Nov 29, 2009 05:37 AM
Modified Sun, Nov 29, 2009 04:42 AM

Grace Ueng is founder and CEO of Savvy Marketing Group in Cary. She has taught entrepreneurial marketing at UNC's Kenan-Flagler Business School. For several weeks in Work & Money, Ueng is offering her 12-step guide to marketing. Last week, she discussed how employees and customers are crucial to how you market (to catch up, go to www.newsobserver.com/ business ).

Step 7: Optimize Pricing:

Pricing is a much debated topic for entrepreneurs launching products. A company does not want to price too high and be unobtainable. Nor does it want to leave money on the table by pricing too low.

The best way to gauge pricing is to ask prospective customers. But just asking them what price they would pay has a couple of problems. People often tell you what they think you want to hear. If the product is truly new, they too will have trouble coming up with a price, because they have no benchmarks.

One method is an online, random sample survey that describes and even shows pictures of the product. Then, ask four questions:

1. At what price would you consider this a bargain?
2. At what price would you consider this expensive?
3. What price would be so inexpensive that you would question the quality?
4. What price would be so expensive that you would not consider the product?

The intersection of the plotting of the four curves resulting from the answers leads to a price point and an optimal price. By asking for prices rather than having them react to given price points, you get an unbiased, frank pricing range and optimal price for the product.

Our firm was asked by Morrisville-based Centice to conduct pricing studies for its Pass Rx pharmaceutical verification product. Since there was no other product like theirs on the market, we researched pricing by conducting one-on-one interviews with decision-makers and influencers attending a national trade show where Centice was already planning to exhibit. We drafted price-related questions to be asked after the pharmacy staff saw a demo of the product. We offered a Starbucks gift card for their time.

Later, we followed up with a subset of those interviewed, asking questions drafted after analyzing the results of the trade show findings. We also followed up by phone with another target segment not represented at the trade show.

Clay Ritchie, vice president of marketing and strategy for Hill-Rom IT Solutions, faced a very different situation from that of Centice: Their product had established competition. So they pursued a feature-based pricing strategy.

"We wanted to be able to make sure that our system was being evaluated, from a price perspective, on an apples for apples comparison with the competition," Ritchie said. "So we priced the base system (which had apples for apples features with competitive offerings) to the competitive market pricing our research had provided us.

"This is a start low, go high strategy. With a baseline established at parity, we then are able to value price the additional options and modules to the baseline."

They also conduct return on investment studies and a win/loss analysis that gives them a view of market pricing and value pricing.

Other questions: How many components make up your product? Is there an initial investment required followed by regular updates or add-ons? In order to make the hurdle of market entry lower, can the initial investment be staged as a loss leader and investment in order to gain future revenue from that same customer?
Are there options to lease versus own on higher ticket items? What is the best way to make the entry point attractive to the purchaser?

Can you offer different pricing and product variations to different channels based on their pricing sensitivities? Are there certain pricing thresholds that require an additional level of approval which could slow or halt the sales process substantially?

How much in demand is your product, and how many suppliers are there? If your product truly is unique, you can demand a higher price.

It is important to classify your product in a realistic light. Has your product offering become nearly a commodity? Or is it truly a luxury class product or service?

Remember that while it is easy to drop a price, it's harder to increase one, so be careful about discounting. Consider instead offering a trial price as well as volume pricing.

If you must discount, be sure to get something in return that will help you build your business such as speaking on your behalf at an industry show.

Workers, customers key to marketing

News & Observer

Published Sun, Nov 22, 2009 02:00 AM
Modified Sun, Nov 29, 2009 04:41 AM

Grace Ueng is founder and CEO of Savvy Marketing Group in Cary. She advises several local companies and has taught "Entrepreneurial Marketing" at UNC's Kenan-Flagler Business School. Over the next few weeks in Work&Money, Ueng will offer her 12-step guide to marketing new and existing businesses. Last week, she discussed strategic marketing and developing a plan (to catch up, go to www.newsobserver.com/business ).

Step 4: Optimize resources.

In a tough economy, getting the most for your marketing dollars is particularly important. If your company can't add to its staff by hiring an entire marketing department, consider outsourcing to get the talent that you need.

At Hosted Solutions in Raleigh, CEO Rich Lee saw an opportunity to attract customers in outlying markets so he created a position, vice president of marketing, and hired Noreen Allen for the job.

Allen, in turn, has gone outside the company to find the right partners, including a PR professional, to help get out Hosted Solution's message. In doing this, Allen has access to senior level talent, but Hosted Solutions' payroll has not taken as large a hit.

Allen also believes that employees are a company's most important marketers. "By exuding passion for the brand, they become a walking billboard for your company," she says. "They talk to their friends and network. If employees feel good, they will become your brand champions."

Building a strong culture within a company can take time, Allen acknowledges. One of her first initiatives after being hired at the start of this year was to refine Hosted Solution's mission, vision and value statement. Then, she created programs around regular communications with the company, including quarterly meetings to share goals and progress, roundtables with CEO Rich Lee, and "plug ins" where the company's seven offices connect for conversations, recognition and fun.

Allen, who created similar programs at SpectraSite, a Cary telecommunications company, said that creating a strong culture drives high customer satisfaction, which in turn yields strong operating results.

Step 5: Conduct actionable market research. Use qualitative and quantitative research tools, including customer advisory boards and satisfaction surveys, to validate your company's market potential, to test name, positioning or messaging, and to get regular feedback.

Sean Murphy of NeoNova Networks said that his company tested a qualitative customer survey and then rolled what it had learned into a quantitative customer satisfaction survey to calculate a "net promoter score."

Companies obtain their "net promoter score" by asking customers: "How likely is it that you would recommend our company to a friend or colleague?" Based on their response, a customer can be categorized into one of three groups: promoters, passives and detractors. The percentage of detractors is then subtracted from the percentage of promoters to obtain a "net promoter score."

From this, the Morrisville company found many areas worthy of further exploration, including what products to emphasize and what products could be pruned. NeoNova then created an in-depth discussion guide and assigned and trained several team members to interview a dozen affiliates across the nation to truly understand "the voice of the customer."

Instead of conducting annual customer surveys, Cary-based SciQuest conducts research with one quarter of its customer base every three months. Jeff Woody, director of customer support, and Jamie Duke, chief operating officer, put together action plans based on the research to optimize its product releases each year.
SciQuest also has online community forums where users can vote on future features as well as an "open mic" night for customers at its annual user conference.

Such research has contributed to strong business results. SciQuest has seen more than 230 percent revenue growth over the last four years.

BlueStripe Software develops its products in part by having customers come into its Morrisville offices on a regular basis to test the latest versions. BlueStripe's employees then observe their behavior and get feedback that incorporated into the product's design.

Randy Carter, whose title is user interaction designer, also gets a detailed study of the company's customers, their needs and challenges and a detailed list of the tasks they need to perform with the product.

Step 6: Develop your elevator pitch. What and to whom are you selling? What is your unique selling proposition?

The importance of being able to concisely state your pitch cannot be overestimated. How sticky and memorable are you to your customers and prospects?

Dan Clem is director of marketing at AlertNow, a Raleigh company that provides a rapid notification service focused on the education market. The company targets its pitch to the district superintendent and his or her staff. Knowing that their product is not the cheapest option, Clem says, his message is reliability and customer service that answers phones 24/7.

"Make your customers happy," Clem says. "Then they become your sales force."

Of course, once you make your pitch, you have to make good on it. Clem tells a story about one customer who called asking for help in killing three scorpions in a vacation rental cabin. His team did their best to help.
Next week: Stay tuned for the next three steps to becoming a savvy entrepreneurial marketer.

Bad times are the best time to promote a business

BY GRACE UENG - CORRESPONDENT

News & Observer

Published Sun, Nov 15, 2009 06:09 AM
Modified Fri, Nov 27, 2009 06:38 PM

The tendency in tough times is to shut off marketing. But bad times actually are the best time to promote a business, says Grace Ueng, founder and CEO of Cary-based Savvy Marketing Group.

For starters, your message won't get lost in the clutter and you have more room to negotiate on price. Bad times also feed an entrepreneurial spirit as laid-off workers start their own businesses - and those startups need to market themselves to survive.

Over the next few weeks in Work & Money, Ueng, who coaches local executives and lectures at UNC's Kenan-Flagler Business School, will offer her 12-step guide to marketing new and existing businesses.
Here are the first three.

Step 1: Make marketing strategic. Make sure that management understands that "marketing is too important to be left solely to the marketing guys." Marketing cannot exist and operate in a silo; it should interact with the rest of the organization. The head of marketing should ideally help the executive team develop the company's business plan and strategy. Equipped with this big picture thinking, marketing is in a better position to help drive revenue and add to corporate value.

Investing in marketing earlier rather than later can offer strategic value. Choosing to invest only in a sales force over marketing will only lead to unhappy salespeople later. Highly compensated sales reps should not and do not want to spend their time doing marketing.

Likewise, investing only in research can cause problems if there's no thought put into how to market a new product, or even whether there will be demand.

"Entrepreneurial companies are always resource constrained," says Sean Murphy, vice president of Sales, Marketing, and Business Development at NeoNova Network Services, a Morrisville company that manages IP services. "Development's effort is best leveraged when you understand the voice of the customer. Our executive team has recently made visits to our customers throughout the U.S., not to pitch new products to them, but to really understand their needs and pain points."

Step 2: Devise a marketing plan. While many entrepreneurs wing it, their chances for success are much higher with a plan - hence the saying, "If you fail to plan, you plan to fail." If you need outside funding, an executive summary of a business plan is essential.

Often we are asked to help a company write a marketing plan, but we end up helping them with their overall corporate strategy and business plan, which should be decided before putting together the marketing plan.

Once you have a prioritized plan, revisit and track progress on a monthly or quarterly basis. If you don't plan for it, it won't happen. Otherwise you will be reacting and executing, not being strategic.

Compose a realistic budget and tie marketing investment to volume and profit. Create a fully integrated marketing plan. One-off marketing initiatives - ads that neither build on each other nor fall under fully integrated brand messaging - are often a waste of time and money.

Large companies with higher staffing levels can afford to have branding groups in a rigorous review and planning process mode for up to a quarter of the fiscal year. Entrepreneurial ventures simply don't have the resources to invest this much time, but they can mimic a modified process: Review business annually, boil a plan down to addressing three key issues (more than three are too many to remember, and then none will be accomplished well), and then write a plan to guide the next 12 months.

How are you going to resource marketing? What is your budget? What percent is it of revenue? Who will do the work? Companies sometimes have great ideas but no one to execute the tasks or vice versa - know what your talents are and where you need help and fill in as appropriate.

Step 3: Grade your marketing plan. Does your plan contain a solid market assessment, thoughtful business review, definition of the top three key marketing issues, positioning and key messaging, road map for products and lead generation, marketing programs complete with budget?

Have you done each of the following:

Market assessment: How big is the market potential in which you compete? What is the growth rate? How big will it be five or 10 years from now? Who are your direct and indirect competitors? Do you have a competitive advantage that is sustainable and defensible? Ideally, you should. Do you compete in a growing or a crowded market? Are your competitors growing or shrinking, and why? If direct competition cannot be identified, is the market opportunity big enough? Or are you truly a "market maker"? This can be positive in that you are first to market but your challenge will be in evangelizing and educating, which means sales may be slow.

Business review: If your company has been around for a few years, conduct a complete analysis of the business: What are its strengths, weaknesses, opportunities, threats? Review deals to date and the robustness of your pipeline. Review marketing: What in your sales kit is working? Missing? What is the quality of your leads? What should you continue? Stop? What are the three top sources of awareness? Internally: Who is contributing the most? Who is not? What outside marketing partners are working? Not?
In what markets are your customers? What additional markets would you like to target? What are your rates of trial and retention or repeat purchases? Awareness?

Corporate and product positioning: It is important to have a quality foundation on which to build all communications. Positioning can often take hours if not days to think through carefully to net the concise and unique positioning in the mind of your prospect. Whom do you sell to? Who are the decision makers and who are the influencers?

What do you do that no one else can do? This is called a unique selling proposition and is a key question to answer.

"We've invested a lot of time in fine-tuning our corporate messaging - had an outside facilitator manage the process, included all functional groups in the sessions, and then shared the outcomes with customers for their feedback," Murphy said. "We look forward to rolling out the results with our various audiences."

Do not try to do all things for all people - focus and prioritize.

Is your product line too broad? Too narrow? What is profitable - what is not? What is your product road map? You should have prioritized product pipeline to grow your company. How does development get its market requirements? Are you in constant touch with your customers and target market?

Marketing programs: Have clearly defined goals and objectives for each as well as how to measure return on investment before the launch of each program.

Budget: Be realistic. It is hard, if not impossible, to market with no financial resources or people. If possible, spend more in the first half of the year to affect the second half of the year positively.

Wood for energy: The pros and cons of biomass plants

By BOB AUDETTE

BRATTLEBORO -- Would burning wood on a large scale to produce electricity be a boon or a bane?

It depends on who you talk to.

On one side of the divide, proponents of biomass plants point to reducing our reliance on fossil fuels, taking advantage of a local fuel source, creating new jobs and reinvigorating the forest industries.

Those who oppose the burning of wood point to its low efficiency, air pollution, the exploitation of our forests for short-term gain.

"Big biomass plants are horrible," said Chris Matera, the founder of Massachusetts Forest Watch, which opposes a wood-to-electricity power plant in Greenfield, Mass. "They use massive amounts of wood to produce a small amount of electricity."

Burning wood for electricity is only 25 percent efficient.

Matera also believes that district heating systems, such as the one Brattleboro Thermal Utility is exploring, is not a solution to the country's energy needs, especially when it comes to global climate change.

The claim that burning wood is "carbon neutral" is "total nonsense," said Matera.

"Burning wood takes a few minutes but it can take 50 to 100 years for a tree to come back," he said.

Thus, burning wood adds carbon dioxide to the atmosphere faster than it can be reabsorbed.

But Adam Sherman, the program director of the Biomass Energy Resource Center in Montpelier said district heating systems and large-scale biomass-to-electricity projects shouldn't be lumped together.

"A big inefficient power plant -- that's scary," said Sherman.

While a 50-megawatt power plant, such as the one proposed for Greenfield, needs at least 500,000 tons of wood a year, a small thermal utility, such as the one proposed for Brattleboro, would use 12,000 to 16,000 tons a year.

District heating systems are "a very appropriate use of local forest resources at a much higher efficiency at a scale that is much more appropriate to certain communities," said Sherman.

In Vermont, 42 schools are heating with wood chips, including Brattleboro Union High School. Other locations include the Vermont State House and state offices, the government complex in Waterbury, the hospital in Newport and Middlebury College.

"In Vermont we have created a track record and a path forward on how we can utilize our precious forest resources," said Sherman.

But, added Sherman, any project needs to move forward "with the utmost care, scrutiny and due diligence on sustainability, availability and the reliability of the resource base. The amount of wood that can be sustainable is a very finite amount."

While Sherman and Matera disagree on some points, they both agree that burning wood for electric power generation is not sustainable.

Large-scale biomass plants would leave nothing for cordwood, pellets or woodchips, said Sherman.

"You've exhausted every single drop of sustainability at no more than 25-percent efficiency," he said. "But to say any kind of biomass use would trigger massive change is absurd."

According to a wood fuel study conducted by BERC, said Sherman, conservative estimates reveal there is up to 1 million tons of wood above and beyond the current yield that could be burned.

When burning biomass for any use, whether electric generation or heating and hot water, what really needs to be taken into account is the full cost of the impact on the environment, said James "Jae" Edmonds, the chief scientist for Pacific Northwest National Laboratory's Global Change Research Institute on the campus of the University of Maryland.

"Whether it's fossil fuels or chopping down the forest, carbon is carbon to the atmosphere," he said.

Biomass as a carbon-neutral fuel source is relative to land use practices, said Edmonds.

"You might actually have far greater emissions," he said. "That's because the carbon tied up in forests, in the soil and in grasses is ‘huge.'"

But if forests are replaced faster than wood is burned, said Edmonds, carbon entering into the atmosphere is removed simultaneously.

"We consider that a wash," he said.

But Edmonds added a caveat: To do so would mean converting land into forest production with consequences that aren't always fitted into the calculation.

"We've got all this land to grow crops to feed people and the other things we use land for," said Edmonds. "If you want to grow biomass too, something's got to give."

Converting land to biomass productions can also drive up the costs of food crops, said Edmonds.

One way the food-crop issue can be confronted, said Edmonds, is if we reduce our consumption of meat. Feed that goes to animals could instead be used to feed humans without increasing the amount of land under cultivation.

"It shifts the diet, frees up the land and makes space for bio-energy," he said.

If adequate planning is brought to the table, said Edmonds, biomass plants can contribute to reducing carbon in the atmosphere if everything from wise-use land practices and modern pollution-control technology is utilized, he said.

"Biomass can be really important in achieving low-carbon stabilization scenarios," said Edmonds. "It's a wonderful renewable. It can be better than any other renewable by a factor of two."

What we need is to put a price on carbon, said Edmonds.

Fossil fuels are relatively cheap because their impact on the atmosphere is not figured into their costs. Because of that, biofuels can't compete with fossil fuels on a cost-benefit ratio.

But if the full carbon impact was taken into account, the price of fossil fuels would rise to a more appropriate level reflecting their total impact on the environment.

All three men said it's important to produce power through a mix of different technologies, including fossil fuels with carbon dioxide capture, bio-energy, solar, wind and nuclear.

"All these things tend to work together or the whole system falls apart," said Edmonds.

"Biomass is not a silver bullet," said Sherman. "It's a piece of silver buckshot."

Conservation and efficiencies can go a long way to reducing our power consumption and precluding the need for additional power plants, said both Sherman and Matera.

Conservation and efficiency are not "chic or sexy," said Matera, but "The amount of energy we can reduce is monstrously more that the amount we can produce by burning wood."

Efficiency and conservation measures can reduce power usage by up to 50 percent.

Bob Audette can be reached at raudette@reformer.com, or at 802-254-2311, ext. 273.

http://www.reformer.com/localnews/ci_13673659

IP to close its Franklin, VA, paper mill, Pineville, LA, and Albany, OR, containerboard mills

International Paper (NYSE: IP - News) today announced plans to close its paper mill and associated operations in Franklin, Va., and its containerboard mills in Pineville, La., and Albany, Ore. The company also announced it would permanently shut down the previously idled No. 3 machine at its Valliant, Okla., containerboard mill. The Valliant Mills other two machines will continue to operate. These permanent shutdowns will reduce the companys North American paper and board capacity by 2.1 million tons.

We recognize these are very difficult decisions affecting our employees, their families and the communities surrounding these mills, said Chairman and CEO John Faraci. We have concluded that we have excess capacity in our North American paper and packaging businesses, and these decisions will better match our supply with our expected customer demand.

Since the onset of the global recession, the decline in demand for International Papers uncoated freesheet in North America has accelerated, and consequently the company has decided to further reduce its uncoated freesheet capacity.