New Product Pricing Strategies

Many organizations large and small face challenges when they are about to launch a new product or service.  Many small business owners will underestimate their product/service and will provide significant discounts to attract customers.  This strategy could be deadly because it is very hard to increase prices rather than reduce prices.  Larger companies spend a great deal of resources on product research, development and production.  In order to be successful they need to at least recover these costs and hopefully generate profits.  Whether the organization is small or large located on Rodeo Drive or a small mid western town they need to ask "How much is the consumer willing to pay?"  To help with this question two new product pricing strategies exist.

First, market skimming calls for the company to set high initial prices to "skim" revenues layer by layer from the market.  Sony used this strategy when they introduced the first HDTV.  This new product was purchased by customers who really wanted the advanced technology and had the means to afford it.  Sony had no intentions of mass production during these initial stages because they new the majority of the market was not ready for such an advanced product.  For this strategy to work the following conditions need to be in place.

1) Product quality and image must support its high price and enough buyers must want it at that price
2) Costs of producing small volume quantities of the product cannot be so high that it cancels out the advantage of charging more
3) Competitors should not be able to enter the market easily and undercut the high price

When IKEA entered the Chinese market they faced competition from local store who offered copy cat products at lower prices.  To win this low price competition battle they use the market penetration strategy which helped them to eventually gain a large market share.  With this strategy the higher the sales volume the greater the discount the company can afford to give on its pricing.  IKEA's large and extensive supply chain helped play a significant in this strategy.  To win with this strategy the following conditions must be in place:

1) Market must be highly price sensitive so that a low price produces more market growth
2) Production and distribution costs must fall as sales volume increases (strength of IKEA)
3) The low price must help keep out the competition.  The penetration pricer must maintain its lowest price position in the market.

When pricing be thoughtful of your strategy and take the time to know consumer demand.

Have you ever had a product or service pricing backfire on you? 

How much pie does your company have?

 Today's businesses are competing for their respective market shares to capitalize on the 335 million consumers in North America who spend trillions of dollars annually on goods and services.  Whether it's globally or locally it is a consistent battle for businesses to either maintain or gain their market share in today's economy.  Within a market companies jockey for competitive positions.  For example, here in Canada Tim Hortons is the market leader for fast food service largely due to their significant share of the grab and go coffee market. The primary competitors for Tim Hortons would be Starbucks and McDonalds.  The competitive position of these organizations is determined by the market share they possess in their particular industry. 

There are 4 competitive positions in which a company can be in. These positions are: 
1) Market Leaders 
- Has at least 40% market share 
- The firm with the largest market share and leads the market price, changes and product innovations 
2) Market Challengers 
- Has 30 % market sharen
- Are firms fighting to increase market share 
3) Market Followers
- Has 20% market share 
- Are firms that want to hold onto their market share 
4) Market Nichers 
- Has 10% or less market share 
- Are firms that serve small market segments which are not being pursued by other firms 

Whether a company is a market leader or nicher they must use specific strategies to either drive growth or maintain their market share.  For market leaders this may mean attempts to gain share of the market followers and nichers competitive positions.  A prime example of this is Home Depot who is looking to take market share away from some local hardware stores by opening new retail locations in more rural areas.  These retail locations will be significantly smaller than their typical large box warehouses with the hope of creating a more local and community feel to attract consumers.  Companies like Home Depot are often forced to begin looking at alternative strategies so they do not cannablize themselves and this often means taking away market share from different competitive positions. In this case Home Depot is carving out a bit of niche by forcing  on geographic areas which are typically served by local hardware stores. 

If we continue to look at the home improvement and contstruction retail sector the market challenger for tis group would be Lowes.  A market challenger is looking to increase market share and can do so by: 
1) Second Mover Advanage 
- Obeserves what has made the leader successful and attempts to improve upon it 
2) Full Fontal Attack 
- Matches competitor products, advertising, price and distribution efforts-attacks the competitors strengths 
3) Indirect Attack 
- Targets the competitors weaknesses, taking over gaps in the competitors market coverage 

For those smaller hardware stores in tiny communities in cottage country they to must take action to preserve their market share.  Strategies for market Nichers include: 
1) Specialization 
2) Have a large enough market that provides growth potential and garners little interest from competitors (obviously that is not always possible) 

Knowing where your company falls in regards to competitive position is important because it gives you and your organization a look at what opportunities exist as well as what threats may emerge and poetically impacting your market share. 

Competitive Analysis

Whether you are a small or large business today's global economy requires an ongoing effort to remain competitive.  Those organizations who believe that they have a significant share of the market and feel like there are no immediate threats suffer from competitive myopia, a condition where organizations make the mistake of solely focusing on themselves and not necessarily the market which they are in.  Competitive Myopia can cripple a company and have immediate impacts on their human and financial capital.  To avoid this condition a company must perform regular competitive analysis and evaluate their position in the market. 

When performing a competitive analysis a company will identify, assess and select its key competitors.  Let's have a look at each: 

 1) Identifying the company's competitors

  - here a organization must look at their direct and indirect competitors.

  2) Assessing competitors' objectives, strategies, strengths and weaknesses, and reaction    patterns 

   - here organizations will want perform a SWOT analysis of themselves as well as their 

   competitors.  

  - when performing a SWOT analysis the strengths and weaknesses are an internal evaluation  which can include customer service, retail support and product design to name a few.  While the opportunities and threats are external to the company.  An opportunity can be geographic expansion for the business and a threat could be changes to gov't policy which could potentially limit the company's profits. 

3) Selecting which competitors to attack and avoid 

- companies must be very careful here as they do not want to attack a company who has a superior product or service when compared to their own.  A company should focus attacking companies who they have a clear advantage over in regards to the particular product or service. 

Above is a quick overview of the competitive analysis process which can help organizations avoid losing share of the market. In my next post I will review what the 4 competitive positions are and which strategies each position uses. 

NFL and Social Responsibility

Like many organizations the NFL is involved and leads many great initiatives and certainly appear to have social responsibility as a priority for their organization.  They are involved with an array of foundations, charities and fundraising events to help communities throughout the United States.

Perhaps the biggest opportunity for social responsibility is right underneath their nose.  In week 13 of the NFL season Jevon Belcher of the Kansas City Chiefs committed suicide after shooting and killing his girlfriend.  This tragically left their young daughter without a mother and father.  In week 14 Josh Brent of the Dallas Cowboys was in a motor vehicle accident that killed his teammate and best friend.  He was the driver of the vehicle and at the time of the crash was under the influence of alcohol.  The NFL has a history of players (employees) having various social and emotional incidents.  Another unfortunate death occurred in 2009 when Cincinnati Bengal receiver Chris Henry fell out of the back of a truck during a domestic dispute.  Like any other organization they have many outstanding citizens as well.  These two recent incidents certainly cannot be identified as a trend but I have a hard time believing that these are the only two individuals in the NFL who may have benefited from more accountability, leadership and team/NFL support. 

The NFL does not have to go far to look for social responsibility opportunities.  They have an opportunity to help their employees become responsible citizens within their respective organizations and communities.  Focusing on the employee rather than a program can potentially have a greater ripple effect when compared to other initiatives they run.  Although they may help raise large sums of money for different initiatives they could have also potentially saved 2 lives. 

The NFL does offer programs to support its players.  The actually offer an extensive array of support systems for rookies and veterans  The NFL currently has various programs in place to support incoming players as they transition from University to the NFL.  These include: 

- Support services at the East-West Shrine and Senior Bowl All Star Games 

- Presentation at the NFL Scouting Combine
- Rookie Symposium

Once a player is in the league the support services continue with programs such as:

- Rookie Success Program
- Former Player Ambassador Groups
- Emergency Counseling
- Various Counseling Services 

Obvious they have an extensive support system in place that is offered to all players.  I believe a possible addition to their current plan should include identifying rookie players who may be considered higher risk.  They can identify those incoming rookies based upon their history in university and high school.  If they notice a trend in behavior they can monitor and support that player beyond what they offer everyone else.  

NFL leadership needs to take serious look at its current support programs and assess their effectiveness.  In addition to this assessment they need to begin identifying players who are high risk.  It is much easier to be proactive rather than reactive when dealing with the lives of employees, family and friends.

  

Born to Lead

Are leaders born or made?

Since I was a child I always seemed to hold leadership roles whether it was as a captain of an athletic team or acting as the lead with a school project.  Participating in athletics requires technical skills and leading a school project requires having a vision, delegating tasks and planning.  So in a sense both of these circumstances are more management related rather than leadership oriented. 

Once I entered the workforce after university I knew that I wanted to lead in some type of capacity.  So being a leader in my organization and entrepreneur today is not a surprise to me.  Although I feel I was meant to lead from a young age my work experience and education in this area has helped significantly.  I now have the capacity to lead on a much higher level and the opportunity to achieve meaningful outcomes.  So I believe I had the foundations to potentially become a great leader however the experiences and knowledge I gained along the way determined the quality to which I can lead.  If it wasn’t for the experience and knowledge would I be comfortable leading and believing I can do more?

 The answer is no, so to answer the question of “Are leaders born or made?” I believe we are born or adopt at a very young age the necessary leadership traits such as intelligence, drive, motivation, honesty, integrity and self-confidence but will seek out what we have to in order to become great leaders within our respective organizations.   

Do you believe leaders are born or adopt the necessary leadership traits at a young age?

Decision-Making Hierarchy "Are you on the bottom?"

In my last post I discussed delegation and the performance of tasks as part of the decision making hierarchy.  I started with delegation first because it is the most often hardest part of the decision making hierarchy.

Assigning tasks is the first step in the decision making hierarchy with any organization.  Two key elements to assigning tasks are responsibility, which is the duty to perform the assigned task and authority, the power to make the decisions necessary to complete the task.  Organizations often do not have problems assigning responsibilities to their employees; however they are often reluctant to give authority.  This can cause inconsistency which may result in the inability to make quick decisions or provide timely solutions.

The responsibility of performing tasks and authority to make decisions varies depending on organizational structure.  For example, in a centralized organization such as McDonalds’ top management retains the right to make most decisions, and top management must approve lower-level decisions before they can be implemented.  With McDonalds operating such a vast number of franchises their centralized organizational approach allows for standard procedures to be maintained at all locations.  However, when decisions are needed to be made in regards to marketing, staffing and other key elements to the franchise approval must come first from upper level management.

Contrary to the centralized organization model a decentralized organization allows lower and mid-level managers to make significant decisions.  This structure allows companies to be more responsive in their environments and breaks the company down into more manageable parts where they have a greater deal of authority with making decisions for their respective units.   This structure can work quite well if the right staff in place.  It allows managers and business unit teams to be innovative when thinking of their product or service and how to improve upon it.  With a decentralized model the company is much more dependent on its people rather than a centralized organization where all decision making is driven by top management. 

Whether or not centralized is better than decentralized I dont know if that can be determined because a lot depends on the organization's structure and culture.  However, I would personally rather be part of a decentralized organiztion which I am.  The ability to be innovative and have the ability to make decisions for our project appeals greatly to me.

“Is your company a centralized or decentralized organization and does it work well for you?”

    

4 Ways to Improve Delegation

As a manager you may sometimes feel overwhelmed with workloads and timelines.  You are responsible for assigning tasks, ensuring tasks are performed and your ability to make swift decisions may be limited by your organizational structure.  These are all processes of the decision-making hierarchy in your organization.  In this post we will look at the “Performing Tasks” process as this area tends to give managers the most difficulty as delegation is required and is most often the hardest to master. 

The decision-making hierarchy in your organization should run smoothly.  However, trouble often occurs when communication between managers and subordinates in regards to delegation and accountability is not clearly defined.  Delegation begins when a manager assigns a task to a subordinate.  Accountability falls to the subordinate, who must then complete the task.

Common Management Characteristic Flaws

Often the managers are not comfortable or confident when delegating to others.  These managers often exhibit several characteristics:

1)     They assume that employees can never do anything as well as they can

2)     They fear that their subordinates will “show the manager up” in front of others by doing a superb job

3)      They want to control everything

4)     They fail to do long-range planning because they are bogged down in day-to-day operations

5)     Are in the dark about industry trends and competitive products because they are too involved in day-to-day operations

Solutions to Common Management Characteristic Flaws

While managers may not display all these characteristics certainly all of us can relate to a few of these over our careers.  Below are some solutions to these common manager characteristic flaws:

1)     Managers should recognize that they cannot do everything themselves

2)     If subordinates cannot do a job, they should be trained so that they can assume more responsibility

3)     Managers should recognize that if a subordinate performs well, it reflects favourably on that employee’s manager

4 Strategies to Improve Delegation

So when you and your team take on the next project consider these 4 strategies to improve delegation.

1)     Decide on the nature of the work to be done

2)     Match the job with the skills of subordinates

3)     Make sure the person chosen understands the objectives he or she is supposed to achieve

4)     Make sure subordinates have the time and training necessary to do the task

What is your most common challenge when delegating work to your team?

Resource: Business, Seventh Canadian Addition, 2011, Pearson Education, Inc.