There’s a New Weapon in Marketers’ Hands

By Dmitriy Karpenko
Executive Director, Touchpoll Ukraine

Everything changes, and with new developments in technology, those changes are occurring faster and more frequently than ever before. Marketing is far from an exception to this – in fact, marketing is benefiting from technological developments as much as or more than many other fields.

Not long ago, marketing specialists needed to wait for weeks or longer for reports on sales statistics and retail audits in order to estimate the effect that new prices would have. Guesswork was frequently necessary in anticipation of the data: How would market share be changed, and how will the changes affect profitability?   It was a continuing, frustrating cycle of data collection, calculations, and guesswork before a report finally appeared that may well have been rendered irrelevant and out of date by changing market conditions.

Today, it’s possible to know the movement in market share based on pricing changes in mere seconds. This is technology making an impact on marketing, rather than hypnosis or black magic. It is a reflection of deep research into price elasticity using special market simulation software that lets managers test different pricing scenarios and gauge influence on sales of different market forces.

If it sounds like fantasy or an online game, it isn’t. Research and technology has put in our hands – or more precisely, in our computers – software that gives marketing specialists the opportunity to know how market share might be changed and how sales might react if prices were to be cut by, say, 20 percent. It can also estimate how many of the consumers who usually buy your competitor’s product would be wooed away by such a price reduction, and how your profitability would be affected (To see how it looks in practice, see the chart).

Simulations can be run utilizing a variety of scenarios. For example, what happens if your competitor raises his price by 10 percent? It looks good for you, as you may expect to attract more buyers and larger profits. Beware, however: Your competition may be running a market simulation program of his own! 

There are many possible variations and outcomes depending on the data that is specified. Consumers who are especially loyal to a product are likely to withstand some price increases, in which case your competor puts more cash into his pocket, while market share is unaffected.

Even though specialized software makes performing simulations faster, the ability to play with prices, sales volumes, market share changes and profitability remains an extraordinary art. High-quality, effective simulations cannot be performed off the cuff; they still require people with experience and innate talent.

Not long ago, nobody envisioned the powerful simulation software we use today. Even collecting the necessary information would require printing hundreds of questionnaires. Even so, it would have been almost impossible to estimate all the pricing possibilities and calculate their influence on the competition environment.

Now, respondents’ opinions are collected by computers that take the logic of respondent’s answers into account, which can play off hundreds of scenarios connected with the choice of one or another product depending on prices. This makes the marketing specialist’s work less a matter of detail-swamped drudgery and more cerebral.

Simulation software may still evoke images of an online computer game, but in the hands of a competent marketing specialist, they are much more: They are a weapon that you don’t want a competitor to have if you are going into the battle for market share and profit unarmed.
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This chart shows information on a group of retail products. The curves depict the price sensitivity for each product or trademark (TM). Assuming that a product’s competitors’ prices are unchanged, the chart shows how specific brands react given a price increase of 10%, or decreases of 10% to 30%.

The brand’s price sensitiveness are reflected in the inclination of the curve: The steeper the curve, the more sensitive the brand is to price change. The shallower the curve, the less sensitive the brand is to price changes.

In the example, the research customer’s brand is TM C, and the research shows how C will react given changes made by competitors. If product prices decline by 10 percent, C’s stake will grow by 4.3%, from 18.4% to 22.7%. If the suggested retail price decreases by 20%, C will increase its stake by 5.7%, from 18.4% to 24.1%. Lowering the suggested retail price by 30% will grow C’s stake by 7.1%, from 18.4% to 25.5%.