Perceived value, intrinsic value and price

Why are some products so desirable that price has little connection to the cost of the item?

In consumer markets people will cheerfully pay premium prices for a clothing item not because of the functionality, not because of what benefits the product offers, but because of what it says about the person who owns it. A discrete logo on an item of clothing (remember when labels were discretely inside a coat?), the type of car you drive, the watch you wear, even the supermarket you shop at for groceries. All these reflect on how the lifestyle of the owner is perceived by others. 

Apple has created huge loyalty amongst its 'early adopters' not by traditional reward schemes, loyalty cards, discounts and the like. No, Apple raises the desirability to fever pitch, getting the hard core afficianados to queue half the night outside their stores, helped by rumours of shortage to ensure a good crowd who are themselves the marketing campaign! 

Unlike the fashion industry, Apple actually market serious technical products, but at a level of high margins that most engineering b-2-b companies would love to reach. Pricing of b-2-b industrial products is another matter and generally is related to cost. Marketing theory says price is what the market is prepared to pay. Great - so just how much is that? As a product manager for lighting fixtures for commercial and industrial applications I spent a lot of time focussing on the cost of a new product. Generally this involved a lot of work with the factory that was to build it. Buyers, engineers, production management, tool makers and planners. Cost was a function of quantity, not just in negotiating component costs, but the type of tooling and it's amortisation as well as factory overhead contribution. So product managers put a lot of effort into forecasting sales volumes and negotiating unit costs - cost to sales - with the factory. At this point a formula took over which inserted the CTS and target Gross Margin, discount for stocking wholesaler and cover for them to sell on to installing contractors. Yes and this was before calculators. The end result was a 'List Price'. Or a 'Trade Price' or a 'Contract Price'. Once committed to a published price, scope for change was limited - either up or down. Computer sheets of sales volumes and gross margins were avidly scanned to see how well the forecasts stood up in the real market and was the product out performing or under performing. Of course there would be competing products out there which is where brand differentiators and product benefits came into play.

But while lighting fixtures had scope for differentiation, due to the need for comparability and standardisation lamps were all really the same product. As a young apprentice I spent 6 months working in a lamp factory in North London in a plant manufacturing fluorescent tubes of various lengths.My role was in Quality Control and one small job was to change the brand. How did that work then? Well the gold looking label on tubes and indeed ordinary light bulbs started off with something like a John Bull printing outfit (if anyone remembers those) which comprised a rubber stamp and an ink pad. It started black, but turn golden during the baking progress. I never really figured out the brand strategy, but as a company we had several brands; I think I counted over 20. Some brands I had heard of, some were for premium markets, others for trade or export, but the ones that surprised me most were for our competitors! Price in the market place was all about discounting - everyone had the same list price. Keeping the lines running at capacity was vital. During discount wars the production team scrutinised marginal costs. And sales managers stepped up discount, even 90 per cent at times. So generic product pricing was a game well distanced from the premium driven markets where necessity not desire drove the purchase decision.

Pricing sets a benchmark for the market, but is rarely the price paid. The relationship between realised price and cost is gross margin which in turn relates to net margin and profit. And at the end of the day that is what the marketing is all for - not just selling a smart product, but making the best profit that can be achieved. That is what product managers work on, a great product helps, but a great product well priced is the goal. 

Making the case for experience

Is there a place for experience in the marketing team, or are older employees out of date and holding things back?

With Prime Minister Dave Cameron's recent cull of senior ministers - and it has to be said of mainly male and 'pale' older men - those  in marketing jobs must be wondering whether their time is up in a marketing space currently in thrall to social media. Although there is plenty of marketing focus on demographics and the power of the 'grey pound' as Britain's population ages, does it extend to employment in marketing? According to a recent report the grey pound accounts for nearly 50% of consumer spending and the over 50's account for 76% of the nation's wealth. And of course many specifiers and decision makers in the engineering and technology field are male - the recent Industrial Technology research found the average age of its readers to be mid forties - so it kind of makes sense to have someone on the team who can relate to that demographic.

Another survey - Age before beauty - claimed 66% regarded over 60s just as effective as their younger colleagues and 21% rated them more useful as team players. Older employees may not salivate in the same way over the latest gadgets or apps, but many probably have a more informed comprehension of how products are made and code is written - it's not that new. Don't forget the important mentoring role older employees can provide too. A former colleague of mine, someone much older than me - assessed a company's stability and capability by means of a straw poll count of how many 'grey heads' he saw in the building.

Although there is a tendency for older employees to subscribe to the 'told you so' school of conversation, the reality is that they have lived through changing times. seen boom times and recessions, seen what worked and what failed and hopefully understood why. It is, in short, experience. With that comes knowledge,  competence, reliability and a 'steady hand'. Surprising then that ex PR man Dave Cameron is sending out the opposite signals. Seems a bit like age discrimination. In marketing terms he has taken the hatchet to a group
of people who are most representative of his party's target audience. Is that wise?

Will advertising agencies need their own algorithms next?

An article in this morning's CityAM  - Beyond digital: What will the future look like for marketing services? -  looks at the role of advertising agencies as buyers are bypassing intermediaries to go direct to manufacturers.

Disintermediation it says raise new challenges for the sellers who don't have the customer relationship expertise. Maybe in future advertising agencies may need to develop their own algorithms just as Google has done which automates much of the advertising space buying and planning role to meet customer needs and responsive to customer data. Isn't that what the stock brokers have done for automatic trading and look what happened.

The City AM piece prompted by Sir Martin Sorrell's - The 10 Trends Shaping the Global Ad Business published on LinkedIn where power still centres on New York but shifting, East, South East and South and a shortage of talent is flagged up. The head of WPP  must know something to warrant a proposed 70% salary hike to £70million p.a.!

Andy Collier …

Today’s diary is dedicated to the memory of Andy Collier.

Andy Collier was a friend, colleague, a fellow director and business partner in the enterprise we started together in 1999, trading under the name of Technical Marketing Ltd. This weekend marks the first anniversary of Andy’s untimely death on 12th July 2013. He was on his way to a meeting of the Association of Lighting Designers (the ALD). Andy’s particular involvement in the ALD was as editor of the Association’s magazine –Focus –a publication which Andy succeeded in elevating to global prominence within the theatre lighting community  thanks to his editorial and design skills . As well as writing and editing, the honorary role brought together two of Andy’s great loves  –lighting and the theatre.V

I first met Andy in late 1985 at Strand Lighting’s premises on the Great West Road in Brentford, in a building Fred Bentham  mischievously referred to as ‘the toothpaste factory’ owing to its former ownership by Colgate. I was about to take on the role of Marketing Director and had asked to meet the marketing team. Andy had somehow found china tea cups and a teapot, pouring tea for us all with a casual elegance that marked out his attention to detail in everything he did. To say he was multi-skilled would be an understatement. He was a great communicator and his new product launches were legendary. Perhaps Steve Jobs took some tips from Andy when he performed his famous launches for Apple some years later. Andy was also technically knowledgeable both on the theory and hands on making things, but most of all he related to people.

In the year that has gone by I find myself thinking Andy is still at the end of the phone. Perhaps to run an idea past him, to help with some computer problem, or just to pass on something I thought might interest or amuse him. Of course Andy’s finger-prints are all over Technical Marketing not least in the systems he set up and his detailed instructions for operating them. Andy would from time to time say, “I am documenting this in case I am run down by a bus”, or latterly “perish at the hand of a mad cyclist”. It was neither bus or cyclist that took Andy. It was at Leicester Square underground station his heart was to fail him. Fittingly maybe in the centre of theatre land and a station to and from which I  myself commuted  when I  worked at Thorn House many years before. 

So, on this sombre anniversary we remember Andy and his contribution to our lives His memory will live on and we recall the celebration of Andy’s life in words and music on that bright sunny late July afternoon beside the River Thames in London as we exited ‘stage left’ to the haunting ‘Rhapsody in Blue’.

New research puts engineers in the spotlight

Research just released by Industrial Technology magazine shows engineers are actually spending more time reading magazines at work and that magazines are shading out web sites as the preferred source for keeping up to date with new products.

Industrial Technology has been conducting similar readership surveys over the last twenty years and has this data to call on for comparison when exploring the preferences of a new generation of engineers. The survey also helps create an engineering persona as being predominantly male, despite a few more women now in the profession, typically mid forties and a Daily Telegraph reader. The latter preference was included as a control question. Whether there is a preference for traditional dark blue or charcoal suits is not mentioned, but despite being brought up in a 'calculator and computer era' rather than as 'slide rule manipulators' of earlier times, they sound similar to earlier generations of engineers.

As an apprentice in north London in the late 1960s we had a library in the research labs where it was OK  to read during work time. But from what  I  recall it was dry stuff like recently filed patents as the magazines tended to go to the commercial engineering types in head office. In our lab we read the Express or Mail in the scheduled tea and lunch breaks. It was only when I moved to head office in the West End that I  took to buying the Telegraph to read on the train commute. We circulated magazines with little lists stapled to the cover, so it could be some time before you got to read the 'news'. 

Today news is instant, some might think to frequent. Today's engineers say that email broadcasts and page flipping on-screen magazines are not welcome, although newsletters are appreciated and email is liked for requested information. Nothing is said at all about the role of social media for networking or video  product demonstrations for example. The picture emerges too of a preference to seek and acquire product information before contacting a company. Magazine advertising also prompts visiting web sites for more of that information. 

So summing up, advertising in the quality trade press is a driver for engineers to visit your web site to learn more. Page turning versions are not popular  any more than email blasts, but printed magazines and newsletters still rank well as a resource for relevant information.

Acknowledgements to Industrial Technology for permission to quote from the survey. Here is a summary of the main findings.

• The last ten years has seen a small increase in the number of female engineers.
• Average age of readers remains static around the mid forties.
• The amount of time spent reading magazines at work has actually increased so, although under pressure at work, they still find them of value in their job.
• 49% of readers will visit a suppliers website for more information after having seen an  advertisement that interests them.
• Despite being the preferred method for readers to be contacted when they make an enquiry, only 34% of suppliers regularly use email to reply to enquiries.
• 60% of readers have “no interest” in eShots and eBlasts, yet 43% of readers find Newsletters useful.
• Search engines then magazines remain the top methods of finding a supplier for component (87% and 77% respectively) but to keep up to date with new products it’s
• magazines then web sites (64% and 57% respectively).
• Only a small proportion of readers (24%) will view page-flip magazines on a computer.
• 80% of readers will “opt-out” of receiving information from third parties. This is up from 70% ten years ago.
• Since 2009 the exhibitions that have entered Industrial Technology reader’s “Top 12 preferred exhibition list” are: Southern Manufacturing, Farnborough Air Show, Offshore Europe, Advanced Manufacturing, SPS/IPC/Drives, Hillhead, TCT, Sensors Instrumentation, and Automatica.
• Industrial Technology readers receive an average of 6 magazines per month as part of their job.
• The Daily Telegraph has been and still is the most popular daily newspaper read by Industrial Technology readers, based on a question used to check statistical validity.