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Pricing strategies and business models for the on-demand economy
Contents
Preface 2
Conclusion 11
Preface
Businesses and consumers today rely almost capabilities in this fast-moving, interconnected
exclusively on digital channels to discover market environment, and how are companies
and patronise their favourite brands. As transforming their business models and
attention spans continue to fracture, customer offerings?
traditional marketing techniques are being This report by The Economist Unit (EIU),
complemented—or even replaced—by sponsored by Oracle, explores these and
innovative, individually targeted strategies other critical questions as companies look
aimed at attracting, acquiring and retaining to engage customers and monetise new
digitally connected consumers and corporate technologies and business models.
clients. Entire business models are shifting The findings and views in this report do
from one-time, capital-heavy transactions not necessarily represent the views of the
to recurring relationships enabled by sponsor. The author is Peter Moustakerski and
flexible subscriptions and digitally delivered Gilda Stahl edited the report. We would like
services. Companies face the challenge and to thank all the executives who participated.
opportunity to monetise new technologies,
products, customer relationships and Interviewees
behaviours. Blake Cahill, global head of digital marketing,
What are the marketing tools and business Philips
models companies use to seize customers’
Paul D’Arcy, senior vice-president and chief
attention and reward their loyalty? What
marketing officer, Indeed
innovative pricing strategies and schemes
Jonathan Epstein, chief marketing officer,
work best to engage and motivate today’s
Sentient Technologies
consumers and business buyers and lay
the groundwork for continued success as Lucas Watson, chief marketing and sales
preferences continue to evolve? What are officer, Intuit
the best ways to monetise their assets and
“We’re For any business looking to attract the customer’s pocket,” he adds.
dealing with attention and loyalty of its customers and Companies struggle with this new dynamic
convert those into sustainable sales, the at every stage of the customer journey. The
‘fracturisation’
marketing airwaves are becoming crowded. initial stage of capturing customers’ attention
of our customers’
“Studies show that the average customer is the most challenging—47% of survey
attention span;
is exposed to 5,000 brands daily,” says respondents consider this stage “somewhat”
we’re competing
Paul D’Arcy, senior vice-president and or “very challenging”. By comparison, 43%
to engage them chief marketing officer at Indeed, a global see the acquisition of new customers as a
in micro- player in the online job search and talent challenge, 40% struggle with driving repeat
moments” marketplace. “Customer communication business from existing customers and 32%
Blake Cahill, used to be episodic—confined to specific believe customer retention is difficult (see
global head of digital
marketing, Philips moments, eg, a sales call, a meeting and Figure 1).
point-of-sale-interaction. We are now past As a result of the information deluge,
an inflexion point, where the customer customers’ ability or willingness to focus on any
relationship and interaction are ‘always one marketing message is greatly challenged.
on’—in fact, the relationship exists in the “We’re dealing with ‘fracturisation’ of our
Figure 1
In your view, how challenging is it for your company today to effectively engage potential
and existing customers across the different phases of the customer journey?
(% respondents)
Very Somewhat Neither Somewhat Very easy Don't know/
challenging challenging challenging easy Not applicable
nor easy
Figure 2
Which of the following are major challenges your company faces today in its efforts to
attract the attention of potential new customers? Please select two.
(% respondents)
Don’t know 1
Source: The Economist Intelligence Unit survey, December 2016
customers’ attention span—we are competing respondents say the presence of too many
to engage them for micro-moments,” says market players competing for the customer’s
Blake Cahill, global head of digital marketing attention is a top challenge they face when
at Philips. Companies have to truncate trying to grab the attention of potential new
their messages and create “micro-bits of customers. Making their marketing message
engagement”, he says. “The optimal video stand out amidst the information deluge is
clip length to grab the customer’s attention on seen as a top challenge by 32% (see
Facebook is now 1.7 seconds.” Figure 2). Smaller companies, with revenues
Survey data confirm that companies under US$500m, are even more likely to
are very challenged by the crowded struggle with this challenge than their larger
and fragmented marketing field—41% of counterparts.
Figure 3
Which of the following are major challenges your company faces today in its efforts to
acquire and convert new paying customers? Please select two.
(% respondents)
“Conversion is Navigating a crowded and competitive respondents), and how to demonstrate and
about product market environment is also a key challenge to differentiate their products and services
converting leads into paying customers and (36%—see Figure 3). “Conversion is about
selection—
driving repeat business. The conversion stage product selection—making it easier for the
making it easier
of the customer journey is often overlooked, customer to find the right product, and then
for the customer
says Jonathan Epstein, chief marketing making the process of selection simple and
to find the right
officer at Sentient Technologies, an artificial- effortless,” says Mr Epstein. “So to drive
product, then intelligence start-up firm founded by the conversion, it is key to curate choices, to
making the original team that developed the natural provide less, but more relevant information,
process of language technology that became Apple’s and to cut out unnecessary steps,” he adds.
selection simple Siri. “Because it’s hard to get the customer’s The challenge inherent in driving repeat
and effortless” attention, people focus on acquisition and business from existing customers is about
Jonathan Epstein, retention. But we think there is a major mutual awareness—companies knowing their
CMO, Sentient
opportunity to get higher conversion,” he says. customers’ needs and customers knowing
Technologies
The top issues companies struggle with in what the company can offer. Survey
the conversion phase are how to offer an respondents believe the biggest challenge
attractive price (indicated by 38% of companies face is that customers are not
Figure 4
Which of the following are major challenges your company faces today in its efforts to
generate repeat business from existing and past customers? Please select two.
(% respondents)
Don’t know 2
Source: The Economist Intelligence Unit survey, December 2016
“Personalisation aware of all their products and services (40%), “Having awareness of the user—making them
works—people followed by customers’ propensity to always feel ‘wow, they are personally aware of
expect their look for the lowest price and best deal me’—is key to repeat business,” says Mr
(34%—see Figure 4). Epstein of Sentient. “Personalisation works—
favourite brands
Given these challenges, developing a clear people expect their favourite brands to know
to know who
picture of the customer’s needs and the who they are, without being creepy,” points
they are, without
ability to quickly offer them the product or out Mr Cahill of Phillips.
being creepy”
price they seek is critical to monetisation.
Blake Cahill
Ultimately, customer retention—and building learn and borrow from industries such as
a lasting relationship with customers—is the hotels, airlines, credit cards and banks that
most critical phase of the customer journey, have significant experience with customer
according to survey respondents. A plurality loyalty and retention,” says Mr Cahill.
of executives (36%) see customer retention The challenges of customer retention are
as the most important stage in the customer primarily driven by the hyper-competitive
journey for achieving the long-term success nature of today’s global marketplace.
of their company’s marketing and business Retaining customers is difficult because
strategy. competitors are pricing their products and
Yet executives widely perceive customer services aggressively to undercut prices (44%
retention as a weak spot. They feel better of respondents) and new market entrants
equipped to engage customers in the earlier are stealing customers’ attention (34%). More
stages of the buying journey: 50% of survey important, however, the challenge is to build
respondents rank their capabilities to attract meaningful connections with customers.
the attention of potential new customers And that, according to Mr Cahill, is all about
as strong, while only 42% feel the same way connectivity with customers; offering them
about their capabilities to retain existing engaging, relevant content; and constantly
customers (see Figure 5). “Loyalty is a new-ish inventing new, better business models to meet
frontier for our company, and many others— their needs and serve them better.
we’re just getting started. We’re looking to
Figure 5
How would you rate the strength of your company’s capabilities in effectively engaging
potential and existing customers across the different phases of the customer journey?
(% respondents)
Very strong Strong Moderate Weak Very weak Don’t know/
Not applicable
for Phillips, professional endorsements are is connected now, so we are shifting from
critical to driving engagement with their ‘product in a box’ strategies to building
medical customer base. Another avenue is new business models based on platforms of
to evolve from focusing on a narrow product content and connectivity. We are going,
to catering more holistically to a broader for example, from selling mother and child
set of needs, including advice, education products to helping customers manage the
and other value-added content. “Everything first 1,000 days of a child’s life,” says Mr Cahill.
Conclusion
As the world becomes even more require that all companies think of themselves
interconnected and the deluge of instantly as technology businesses and envisage their
available data from devices all around us products and services in the form of software
(and even within us) continues to overwhelm and platforms. In the longer run, companies
customers and companies, effective need to make sure their business model
marketing and communication will become continues to be relevant and effective,
increasingly challenging. The tools that that they innovate and experiment, and
worked yesterday will likely not work as well they solve the important unsolved customer
tomorrow—they will become outdated (too problems better than everyone else. “The best
slow, too long, too complicated) and be companies focus obsessively on growth, and
replaced by more effective tools that reach treat customer delight as paramount,” says Mr
the customer better, engage them more Watson of Intuit. “Companies that accomplish
effectively and monetise the engagement this are constantly reinventing themselves.”
successfully. Staying on top of, and being Those who are capable of innovating,
equipped with, the tools and strategies being agile and continuously reinventing
that work will be critical to the success of themselves will be successful in the long run.
corporate marketing and monetisation The rest will be replaced by nimbler, smarter
strategies. market players. “It is an existential threat, and
But this rapidly changing environment will opportunity,” says Mr D’Arcy, “it’s hard to
enable—and require—companies to develop evolve, but those who are able to see beyond
new products and services and to evolve their current corporate assets and build
entire business models, to stay ahead, stay their business on continuous innovation and
relevant and ultimately stay in business. It will experimentation will be the winners.”
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