Optimize Price in the Publishing Industry
- 19 November 2020
Background
The RML Approach
Focus Groups
What do consumers look for when considering buying a book?
Online Survey
What are consumers comfortable with paying when purchasing a book?
Client Value Mapping
How do we ensure we are in the right position versus the competition?
Execute, Monitor, Report & Adjust
How do we ensure we can implement and sustain changes
successfully in the marketplace?
The Challenge
The client wanted to maintain the current strategy of a single retail price to ease execution across channels and the overall market. With limited point-of-sale data, history of price changes and corresponding customer feedback, it was difficult to initially assess the market sensitivity to a price increase. The specialized nature of the book offerings and limited competition made the assessment increasingly difficult. With flat revenue over the past three years, Revenue Management Labs (RML) was called in to examine the feasibility of implementing a price increase across the entire portfolio.
1. Online Survey
The purpose of the online survey was two-fold: identify the most important factors influencing a book purchase decision and determine consumers’ willingness to pay.
MaxDiff
Willingness to Pay
Price Sensitivity (Van Westendorp)
Another technique utilized to understand pricing and price sensitivity was the Van Westendorp Price Sensitivity Meter. This method is a gauge of consumers perceptions to a products’ price. Contrary to the Willingness to Pay, it allows respondents to enter prices manually based on four questions:
- At which price would you consider one of these books to be so cheap that you would have doubts about its quality?
- At what price would you consider one of these books too expensive that it is not worth purchasing?
- At what price would you consider one of these books is a bargain?
- At what price would you begin to consider that one of these books is getting expensive, but you still might buy it?
The results were compiled to create a chart displaying the optimal, indifferent, lower and upper range price points (See Figure 3). The circle in red displays the significant increase of respondents that found a price over $25 was either expensive or too expensive. The purpose of this circle is to identify where large volume drop-offs are likely to occur.
2. Focus Groups
Two focus groups were conducted in separate markets across the United States. To ensure we were conducting the focus groups in average consumer markets, the location was selected based on the following criteria:
- Not the home market of the publisher
- Average sized market ($ Sales & # of books sold)
- Not a distribution center
- Representative of the average customer profile (based on previous market research)
To match the consumer profile of the company, participants were required to have purchased a history book in the past six months and closely fit the demographic profile. Participants were shown and asked questions about the factors influencing their book purchase decision. As well, the participants were shown different versions of the history books to evaluate the importance of physical factors when making a purchase.
3. Perceived Value Maps
The results of the online survey were amalgamated as part of the client’s perceived value mapping sessions. The goal of a value mapping session is to assess how consumers view the client’s product versus competition (price and value attributes). Results of the MaxDiff were used to incorporate the importance of price compared to the perceived value of all other attributes. The Focus Group results allowed the client to enter the mind of the consumer. The results of the session are shown in the Value Map Figure 4. In the results below, the client has the second-highest price with a clear advantage in terms of perceived value. This shows that even with a price increase there is still enough excess value for the client to maintain their competitive edge.
The Result
+$2 Price Increase
+10% Revenue Increase
The client was able to implement a price increase for the first time in ten years. They were also able to better understand the wants and needs of their consumers based on the survey and Focus Group findings. They implemented a price increase of $2 across all titles and, as a result, have seen over a 10% increase in both revenue and profit without adversely impacting volume or market share.
