Pricing

I previously blogged about pricing here regarding behaviors and pricing, and academic studies providing insights to develop strategies from.  Recently from McKinsey Quarterly on "Building a Better Pricing Structure" here, average review though:

"A pricing infrastructure can be difficult and costly to create. It requires investing appropriately, empowering the right people, articulating clear targets and goals, and managing risk. Yet the benefits of realizing true pricing excellence are worthwhile: a one-percentage-point improvement in average price of goods and services leads to an 8.7 percent increase in operating profits for the typical Global 1200 company.1 Since a well-executed pricing-improvement program often yields price increases of two to four percentage points or more, sustaining a long-term price advantage may represent roughly 15 to 25 percent of a typical company’s total profits."

Asia Poised for Innovation

A chat with friend and advisor Mr. Martin Ertl, CIO Bombardier Transportation highlighted that the most recent patent applications for alternate energy and/or clean energy have been coming out of China and at a steady pace and massive rate.

The following article from the McKinsey Quarterly, "Asia and the elements of innovation" by Eric Drexler could not have been more apropos to my conversation with Mr. Ertl.  The article discusses some of the key differentiators of Weatern and Asian cultures and why Asia looks to take exponential lead in innovation.  The article states:

"To become a world-class center of technological innovation, a society must have three basic elements:
• drive—a culture that supports change and hungers for it
• human capital—the personal abilities that make world-class technology possible
• a capacity for mobilization—a society’s ability to pursue ambitious new goals"

Having personally experienced education in South Asia, I can attest to the following, though it is changing:

"Cultures differ radically in their attitudes toward education. In the rising societies of Asia, education is a top priority, far above, for example, sports. During national exam season, when students study for the test that will determine their future in higher education, I found that Indian newspapers carry science and mathematics quizzes that would stump most US college graduates. Recent physics tests given to US and Chinese students entering comparable technically oriented universities produced distributions of scores that had little overlap. In Chinese societies, scholarly students have a status among their peers like that of athletes in the United States and run little risk of being marginalized, ridiculed, or beaten. In India, I found that students chase after the autographs, not of entertainers, but of scientists."

Read the complete article here.

Changes in Consumer Decision Making

The McKinsey Quarterly publishes a thought provoking look at the "consumer decision journey" here.  The article developed the new approach to the decision journey:

"... by examining the purchase decisions of almost 20,000 consumers across five industries and three continents. Our research showed that the proliferation of media and products requires marketers to find new ways to get their brands included in the initial-consideration set that consumers develop as they begin their decision journey. We also found that because of the shift away from one-way communication—from marketers to consumers—toward a two-way conversation, marketers need a more systematic way to satisfy customer demands and manage word-of-mouth. In addition, the research identified two different types of customer loyalty, challenging companies to reinvigorate their loyalty programs and the way they manage the customer experience."

There is a link to a good interactive animation titled "The consumer decision journey" with audio that discusses the changes today's consumer has incorporated vs. the traditional funnel used by marketers to define touch points for their messaging.

Consumer Spending Vs. Savings in the USA

In The McKinsey Quarterly, "The economic impact of increased US savings" here. Here are a few quantitative insights based on the fact that household incomes have not been growing and in some cased globally have been decreased, a recent example being renegotiation of contracts at automakers in Germany.

"...holding incomes constant, each percentage point increase in the savings rate translates into roughly $100 billion less in consumer spending¬. A 5 percent savings rate would mean $530 billion less in spending each year if US incomes fail to rise; if they rose by 2 percent a year, a 2.3 percent savings rate would mean $250 billion less spending, all else being equal."

The conclusion:

"But without significant income gains, deleveraging could undermine consumption and the global economy for years to come."

Robert Shiller on the Current Economics

Excellent conversation with Robert Shiller at The McKinsey Quarterly "Surveying the economic horizon: A conversation with Robert Shiller" here. The quarterly's email states, "Robert Shiller, a professor at Yale University and cocreator of the Case–Shiller Home Price Index, discusses four aspects of the current crisis: regulating for financial innovation, reducing trust in models, redesigning institutions, and the time line for turnaround. His perspectives are informed in part through his research that psychology—particularly an understanding of human irrationality—can play a key role in explaining economic breakdowns and exploring effective solutions."

On innovation, Robert Schiller states:

"I don’t want to see us killing off innovation, and this is what may get lost—and I hope it doesn’t get lost—in the current crisis. Ultimately, let’s not forget that we’ve learned lessons that a capitalist economy is an economy that promotes entrepreneurship, and entrepreneurship is not the province for government bureaucrats."

On the possibility of an economic turn around:

"I don’t want to say that I don’t think there will be a turnaround soon, but I think that many of us are too much expecting that it might come tomorrow or the day after. And this volatility is evidence of that. So I think it is quite possible that the stock market and the housing market, five years from now, will be close to where they are now."