Wednesday, April 9, 2008

SIIA Brown Bag - Pricing Content: Defining Rules in a No-Rules Marketplace

Darrell Gunter, CMO for Collexis holdings, kicked off the session noting some key examples from the past and present of how radically different pricing schemes can help to define marketplaces anew. A couple of decades ago, companies like Telerate were dominating financial markets with USD 700 terminals, yet Bloomberg started with USD 1500 terminals and eventually went on to dominate the financial information marketplace. By contrast, today oncology.com - now folded into cancer.net - tried doing oncology journal content in an ad-based online model. Disruption can come from both sides of the scale.

Adam Bernacki, VP of Sales for Leadership Directories, noted that revenue retention is always a key goal while at the same time listening to clients and understanding what they really find to be valuable. Neal Posner, for VP of Pricing for Avaya and Elsevier, pricing is a practice focused on bridging many conflicting approaches between internal divisions
and a limited sales force that can sell only so many ways. One of the biggest challenges is when new players come in with completely different business models. When Avaya found more competition for their core technology from companies with different goals they began to focus more on value-add content.

Rob Docters, Managing Partner for Abbey Road Associates, runs a boutique consultancy specializing in price strategy. He sees pricing not as the price tag, or price level, but the inputs into that tag, the gross or net value, including the brand value. Brand drives price when it tells a story that you can't tell yourself. USPS was looking at rate pricing, they did some interviews on bulk mail pricing, noted that people throw out mail with the bulk mail insignia. People will spend more for first class mail just not to get into the junk-"branded" stack. Toys 'R Us tried having no tags and a kiosk with a device that could tell you what the price was. This enabled experimental pricing to adjust pricing and discover the best price, much as Web sites do via ecommerce software. Goods such as software are not tangible, you need to know how much your customer knows to understand brand value. With tiered pricing, but in minimal effort to de-feature, the manual will tell them what they can and cannot do. A key problem is when customers get out of touch with the benefits of a product - don't cancel, give your advocate for the product the product for a year to keep your brand value still in the door.

Charlie Terry, President of MarketResearch.com, has a customer base of brand managers in consumer products, biotech,investment banking and professional services. The challenges for an aggregator are different, pricing and discount don't play as much of a role. The customer's perception of value is the most important factor, have to have a sale - the customer being comfortable with a price - but you need to capture the market as well, to price to what's generally accepted for a given marketplace. It's oftentimes perception - originally black Motorola Razr phones were USD 35, red ones double or more that price. Getting the price right is a tactical issue oftentimes, you have to match delivery with the people's expectations for a given medium. In the mid '90s, hardware was driving much of the value of many financial information services, not the content. They had to adapt their models accordingly as the Internet shifted the value point of information delivery.

How do you establish value in pricing? Neil: oftentimes there are many different price points that will work, buying behavior is not always rational. There has to be a group to monitor what's happening with pricing,typically - though only one person in the audience had such a unit. On bundling for pricing, Rob notes that there can be weak bundles, for example, cross-promotion of car rentals from airline reservation services. This is stronger overall than when airline companies bought car rental companies and discovered that this was not necessary or even advantageous to make good price bundles. Bundling can also help to make complex products more simple to sell, whereas simple products are easier to de-bundle. Terry: There's a temptation to think that selling value is good, selling price is bad. If you sell a report one year you may not buy the same report next year - and you may be able to bundle other products, such as a newsletter, that extend the research's value.

Adam notes that it's important to make pricing a collaborative process, the process originates with a calculation to understand how much one can afford to lose on a product, then with other groups to understand what it means to a product group, and so on. More constituents have more of a voice these days. How do you determine if you've done a good job? It has to be consistent within the company's own scheme and with the methods used to deliver the product. It has to be logical, so that an average sales person can explain it in a minute or so easily and consistently. Finally, it has to be transparent on some level; if you've done a good enough job and it becomes known in the marketplace it doesn't become a target for discounting, because it's sensible and accepted.

Charlie notes that a major publisher put all their books on the Web in PDF form, their print sales doubled. Rob notes that this example of "hooking," where one thing leads to the purchase of another. In amusement parks, you get "hooked" into being in line for a particular line. Lawyers that practice only in Pennsylvania won't buy federal content - until they need it, at which point a service like LexisNexis will charge six times for a "rush order." Question from Jeff Cutler: pay walls reduce SEO optimization, how does that affect a premium service and how much do you give a "bite of the apple". Charie: will return table of content and synopsis at first, after a few times you need to register, so this enables search-enabled sales. Sales reps will also help you to search Marketresearch.com. Need "real words" there, work with publishers to get the right content for search engines.

A real difference between price and cost, how is that managed? Neil: What's the real cost to you of not having the product? Work from there. My question: how do we do better in publishing at establishing value in context? People look at the internal data too much, look at your customers. Large companies less sensitive to cost drivers, small companies more sensitive. Neil: Look at net price as much as list price, if you're in control of a net price - the price after terms and discounts and concessions - you can match the sale more exactly to people's value sensitivities.

A good session, I think the real question is perhaps not so much how pricing itself needs to change but how publishers discover demand in the marketplace. The relatively fixed pricing that we see in enterprise content publishing especially tends to create the ever-present compaint about content commoditizatization. Too much money is spent on creating custom workflow applications - the equivalent of Rob's example of the airline buying the car rental company - to have a captive context. But the Web is showing us that content thrives when it's more able to travel quickly and effectively into different context where it's valued highly. Publishers are relying far too heavily on old production-oriented models for pricing when they should focus more on market-driven models more akin to a transaction-driven marketplace. This will carry more risk, but ultimately more reward for those who can get content into the right contexts most efficiently.
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