Posts Tagged ‘Van Westendorp’

Was Marketing Research Absent from Liz Claiborne’s Strategy to Target Younger Consumers?

August 17, 2010

Yesterday’s Wall Street Journal reported that Liz Claiborne’s efforts to appeal to younger female consumers may have been the company’s downfall. This month, J. C. Penney will launch an exclusive line of Liz Claiborne clothing, home and accessories. As part of the agreement, Claiborne cedes control of production and marketing and converts the label into a mass market line in exchange for royalties, the article reported. In five years, Penney also has the option to buy U.S. rights to the Liz Claiborne name.

This may well be the concluding chapter in what appears to have been a failed attempt by Liz Claiborne to broaden its appeal to younger women. Apparently, Claiborne realized correctly it would need to move to a younger consumer, as most of its customers had been working age Baby Boomers, who have begun to retire. However, the Wall Street Journal indicates that its efforts to target the younger female consumer actually did more to harm the brand.

In trying to appeal to the younger crowd, Liz Claiborne nixed, sold off, or licensed out tried and true lines; it changed designs so much that it confused its existing customer base; it introduced lower priced items, eroding its appeal as a high-end brand; and it alienated its long-term relationship with Macy’s.

As I read the article, I couldn’t help asking myself whether Liz Claiborne did its homework. I don’t know whether Claiborne did or didn’t do marketing research, but deciding to pursue a new target market requires extensive marketing research, because so many mistakes can be made because of unaided judgment. Among other things, it is important to have surveyed the younger female shoppers to understand what they needed for workplace casual attire; and to have looked for common ground between existing product lines and the new, emerging fashions that the younger crowd was embracing. Most likely, the research would have led Claiborne to develop lines that were new enough to appeal to the younger working woman, but traditional enough to maintain loyalty with its existing boomer customer. If the research showed that the younger women wanted something drastically different in the way of style, then Claiborne could have used that information to develop a completely different line (likely by launching a whole different brand) aimed at those preferences.

When appealing to a new target market, it is also important to do pricing research. Surely younger consumers don’t have the discretionary income that older ones do. But that doesn’t necessarily mean a company should introduce lower-priced apparel. As Van Westendorp pricing theory suggests, a price can communicate one of four things to consumers: a good buy, a luxury item, an overpriced item, or a cheap, low-quality item. I could only wonder whether the introduction of lower priced merchandise might have led consumers to believe the newer lines of Liz Claiborne were of lower quality.

Companies that don’t conduct marketing research – or conduct it inadequately – increase their risk of failure, declining sales, customer defections, and increased competition.

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Pricing Demystified, Part II: The Van Westendorp Price Sensitivity Meter

March 12, 2009

Several different analytical approaches are available to help marketers determine the optimal price to charge for their product or service.  Here, I will discuss the Van Westendorp Price Sensitivity Meter, which is simple to employ, yet gives some very useful information.

Start with Four Questions

Van Westendorp starts with a survey asking respondents just four simple questions about price:

  1. At what price would you consider this product so expensive that you would not consider buying it? (Too expensive)
  2. At what price would you consider the price of this product so low that you’d question its quality? (Too cheap)
  3. At what price would you consider the product starting to get expensive – not out of the question, but you’d need to give some thought to buying it? (Expensive)
  4. At what price would you consider the product to be a bargain – a great buy for the money? (Inexpensive).

Graph the Responses

Once you have compiled this information, group the answers to each question into frequency distributions and plot the cumulative frequencies on a graph.  Each question above will have its own line on the graph.  The percentage of respondents should comprise the vertical axis; the price points, the horizontal axis.  Since the lines need to intersect, invert the cumulative frequencies for the “Inexpensive” and “Too cheap” on the graph.

Determining the Acceptable Price Range

The price at which the “Too cheap” and “Expensive” lines intersect is described as the “Point of Marginal Cheapness,” or PMC.  PMC represents the lower limit of the acceptable price range.  Similarly, where the “Too expensive” and “Inexpensive” lines cross is the “Point of Marginal Expensiveness,” or PME.  This is the upper limit of the acceptable price range.

Determining the Indifference and Optimal Price Ranges

Next, the point where the “Inexpensive” line and the “Expensive” line cross marks the “Indifference Price Point,” or IPP, the point at which the same percentage of respondents think the product is either cheap or expensive. 

Finally, the point at which the “Too cheap” and “Too expensive” lines intersect is known as the “Optimal Price Point,” or OPP.  It is at this point where the percentage of respondents who say the price is too cheap equals that who say it is too expensive.  OPP is optimal in the sense that the price senstivity to the product for being cheap is equal to that of being too expensive, and is often the recommended price.

Using the Results

  1. The OPP is the recommended price for your product or service.
  2. Competitive products will rarely be priced outside the acceptable range (between PMC and PME).
  3. If your goal is a healthy balance of revenue and market share, price as closely to OPP as possible.
  4. If your goal is to maximize market share or penetration, price somewhere between PMC and OPP.
  5. If your goal is to maximize revenue, or “skim the cream,” price somewhere between OPP and PME.

Warnings

Finally, be aware of four limitations or dangers of Van Westendorp:

  1. Your data is derived from surveys, so questions must be worded properly to avoid biased responses, and sample size must be large enough for statistical accuracy;
  2. Different customer segments have different price sensitivities.  Hence, if you serve multiple customer segments, the OPP and acceptable range may be different for each;
  3. Even if you price within the acceptable range, you can still price too low such that you lose money and/or get regarded as low quality; and
  4. Even with a skim the cream strategy – pricing within the acceptable range –  you can price your product too high that your competition wins your customers.

All this said, continue to know your customers intimately and, using Van Westendorp’s points for a guide, experiment with different price points until you find the one that brings you the closest to achieving your marketing objective.

Pricing Demystified, Part I

March 11, 2009

Determining the right price to charge for your product or service is mind-boggling at best and risky at worst. Price too high and your brand is perceived as too expensive; price too low and your product loses money, gets perceived as low quality, or both.

Many businesses first assess what it costs to produce their products and then add on some margin for profit. This is known as cost-driven pricing.  Though this practice is common, it can be dangerous, since a competitor with a lower cost structure will be able to undercut them on price.

It is better for businesses to practice  price-driven costing instead.  In this case, the business first determines the optimal price to charge its customers, and then works to optimize the costs to produce the product in such a way that it can make a satisfactory profit at that price point.

Knowing what you can charge for your product forces you to think strategically about how to make the highest quality product for the least cost possible.  This way, your business has some margin to withstand any price competition that may arise.

How is the optimal price point for a product determined?  There are several pricing research methods available: conjoint analysis and discrete choice modeling are common, but also complicated and expensive.  Gabor Granger and Van Westendorp are also popular, but simpler and more intuitive.

In “Pricing Demysitified, Part II”, I will discuss how to use the Van Westendorp Price Sensitivity Meter to determine the optimal price for a product or service.