evolution of brand marketing moves in one direction only – toward greater
complexity. Whether it’s the ever-expanding panoply of media or the rising
flood of Big Data or the multiplying numbers of markets with robust
middle-class consumer populations, brand marketers must manage ever more
complicated markets well beyond the ken, or even the wildest dreams, of the
advertising doyens depicted in AMC’s sepia-toned Mad Men.
pricing is one of these modern-day complexities. This is pricing that varies in
real-time to reflect on-going shifts in buying patterns, competitive pricing
and contextual factors, and it is the coming thing in all categories. A Wall Street Journal story reported
that online prices for everything from white goods to children’s clothing to
consumer electronics to shoes to jewelry to detergents to razor blades are in
constant flux. The highest price one minute is the lowest price the next. One
online pricing software company, Mercent Corp., says it changes the prices of
two million items every hour!
Internet is the frontier of dynamic pricing, but it is found increasingly in
every type of market and category. A CBS
New York story reported that several high-profile New York City restaurants
are now varying menu prices based on time of day or week and demand for
is nothing new about dynamic pricing. Hotels and airlines have long done it. Airlines call it yield management. But new
technologies and analytics are now bringing these practices to many other
categories that have never known anything but fixed pricing (albeit, with the
occasional promotion or sale to clear inventory or temporarily boost sales).
pricing is a corollary aspect of Big Data, so it is certain to grow. But there
is something deeper at work, a more fundamental force shaping the future of
pricing is more than just greater complexity. It is greater sophistication
about managing the brand marketing mix. There is no advantage in complexity for
complexity’s sake. Brand marketing has become more complex because of greater
sophistication of brand marketing is driven by the degree to which competitive
advantage requires advanced methods and tools. This is not to say that building competitive advantage has ever been
easy. It has not. It is simply to say that today’s marketplace is much more
mature and developed than ever before, so many of the things that created
competitive advantage in the past are now cost-of-entry table stakes that barely
get a brand in the game, much less put it ahead. Add to this the exponential
growth of Big Data about markets and consumers.
maturity demands new analysis, and Big Data creates unprecedented opportunities
for new analysis. The combination is vastly greater complexity in service of a
vastly greater need for sophistication. But it is sophistication of a
particular sort, one in which competitive advantage is found by exploiting
inefficiencies in the marketplace.
broader topic of inefficiency has a long, contentious history in economics,
with one side arguing vociferously for the efficiency of financial markets and
the other side arguing with equal gusto that money-making inefficiencies
abound. There is evidence on each side, but the truth seems to be a hybrid of
both opinions, a hybrid with relevance to brand marketing.
in financial markets can be things like undervalued companies
or more complicated things like high-frequency
trading. Those who spot these inefficiencies first make millions, if not
billions, thus proving the case for competitive advantage from inefficiencies. But
the rush by others to follow suit quickly eradicates any inefficiency, thus
proving that markets operate with efficiency. This cycle of finding one thing
and exploiting it, then moving quickly to the next is true of brand marketing,
revolution in marketing is remembered for the brands that pioneered it, not the
me-too brands that came flooding in next, rendering that revolution status quo
and thus creating a need and opportunity for the next new thing. Over time,
this pattern of an inefficiency peak followed by a flattening into
business-as-usual requires ever more sophisticated innovations because the
inefficiencies become harder to find. Unless brand marketers can find the next
set of inefficiencies to exploit, they are stuck in a parity marketplace with
ever-downward pressure on margins.
pricing is all about exploiting inefficiencies in pricing. It turns out that
there are situations in which consumers are willing to pay more, and other situations
in which consumers would buy if the price were lower. With flat pricing, brand
marketers can’t raise prices when such demand is present nor realize demand
that can only be unlocked by lowering prices. This is a classic inefficiency,
similar in concept to the advantage reaped by high-frequency traders.
on high-frequency trading are now beginning
to decline and level out. Separate
and apart from the threat of regulatory curbs, the growth of me-too competitors
has begun to smooth out this market inefficiency. Eventually, the same thing
will happen with dynamic pricing in brand marketing, just as with every
marketing innovation in years past.
key for brand marketers is to know where to look for the next competitive
advantage. It is not just any innovation
that comes along, but innovations that exploit inefficiencies in the marketing
mix. This includes the old standbys of time, space, attention and money, as
well as new things like energy, mood, social interaction, contextual nudges and
example, Amazon is now pioneering same-day
delivery, which is all about a more sophisticated way of exploiting inefficiency
in the marketplace. But perhaps 3D
printing will be the next step forward beyond that, yet an even more
sophisticated way of exploiting inefficiencies in delivery, and perhaps even
inefficiencies in customer service, warranties and product updates as well.
line, what’s important to note is that dynamic pricing is about more than pricing;
it’s about inefficiencies. That’s how to look for competitive advantage in the
sophisticated brand marketplace of tomorrow. Find inefficiencies, exploit them,
and then move on quickly to the next.
Contributed to Branding Strategy Insider by: J. Walker Smith, Executive Chairman, The Futures Company
Sponsored By: The Brand Positioning Workshop
FREE Publications And Resources For Marketers