Episode #0052 - How brands can help with pricing segmentation

In today's episode of Pricing College - we discuss how brands can help a business segment their customer base by value drivers and ability to pay. We look at brands in the hotel industry and also in the car industry.   In today's episode, we want to cover how different brands can help you segment your market. Have you ever thought maybe that you've got some brands that I'm thinking now of like hotel brands? And how they can help position a business in the market. But they also can help position your pricing in the market by having the existence of three or four different brands. So like I'm thinking about Accor brands. You've got Sofitel, you've got Novotel to make your brand under that business. They really help to define the pricing, and also price positioning, the tiering system, and customer segmentation. Yes, In theory, what we're doing is we're segmenting our customer base and our customer base are people who want to stay in a hotel in this instance and there are other examples we can give also. But in this instance, there are people who want to stay in a hotel. That is the main item they're purchasing. But their drivers will be very different. Some will want a romantic weekend away, or this will be a family holiday. Other people might be workers in a city for a couple of days and just want somewhere where they can prepare their meals, etc. So there are slight nuances to the drivers that are making people choose that hotel and location. But I suppose in America they're probably the most advanced in that you have a huge number of very micro niche brands even under the same larger brand. Whereas under the Accor brand common in Australia we have Sofitel, the top five stars going the whole way down to a Formula One which is a one star. I think America is probably the most advanced in that. And have done even more market research on the customer base to tailor in. I was thinking about that. They've done a lot of segmentation. A lot of customer and market research to define those customer groups and price groups. But they're almost like micro-segmentation, and they're far more developed than in the US. They seem to know each of their customer groups. Then they market to these various hotel brands according to what they want to hear based on the customer experience, their online experience. They want their customer value drivers to direct them to the right offer. Then from there, they provide promotional offers that are tailored to that individual. It is a very personalised offer. So you can see this almost like a layered approach. You've got your price and your customer segmentation aligned to brands. Then from there, you move on to personalise promotion to sell more. To ensure capacity utilisation, and to drive up yield based on customer demand. From a pricing perspective, what are the real reasons why companies do this? I suppose if you take an example wherein a world that this didn't occur. Where one hotel company just has one hotel brand. Basically what they'll be doing is they'll be charging the mid-market price. It'll be too much for some people and not enough for others. There will be enough luxury and value-added there. So really what you're doing is you're segmenting the offer. You're tailoring the exact offer that you're giving to customers to maximise that willingness to pay. And meet that willingness to pay in those different categories. So you're providing a basic service to people who just need that. A stock up for the night somewhere to rest, maybe they're making an early morning flight. And then if the whole way up the Echelon to people who are willing to pay. The once in a lifetime trip to a real luxury hotel. It could be fancy restaurants that go with it, and you're maximising that willingness to pay. There's a threshold where you can't have an infinite number of hotel brands. But it's certainly in the American method they'll tailor it. They'll be of little value. You can pay extra for certain things like wine etc or maybe use the hotel spa and these sorts of things. So it is tailoring the offer into the value drivers to have maximised the willingness to pay that people have. I suppose this is really a wider business strategy in terms of consolidating. Buying up relevant brands and businesses that complement your business strategy. Aligned to your pricing strategy. There's no point for instance buying brands that don't fit your pricing strategy. Or, could be at odds with a pricing strategy. Because it's very hard to then capitalise and monetise your business strategy you can end up almost sort of diluting your price point. So, here you see two very important things, the impact of pricing on your business strategy and how the wider business strategy in terms of acquisitions and mergers is linked to your pricing strategy as well. You see this in many different areas not as advanced as in the hotel industry. But the classic example of airlines in Australia is Qantas. Which is at one point in time was the dominant player in the market and is still. To a large extent, they then launched a lower-priced version of Jetstar. You'll also see it even in the car companies. Hyundai, the Korean company they are moving up developing from being a bargain car to sort of a modern mid-market car. Then launch a lower price entering into the market also in Kia. The American market is very large, with 300 million people with a lot more similarities across the different states that you might have than across European countries. You can have more brands under the same company. An example again will be General Motors were obviously through a long history of 100 years or more of acquisitions etc buying up different brands. They operate a huge number of branded cars tailored to certain niche segments. They take advantage of what people want from a vehicle. Whether its history, the brand and logo, comfort, status, sports appeal, all these different things. Knowing the customer, knowing what drives them, and then providing a product with barriers against the lower-cost competition. So you can maximise the profitability in that sector by potentially selling something at a cheaper price to somebody else. This is a great example of strategic acquisitions where the strategy team is thinking commercially about future acquisitions. How are they going to expand the brand and product portfolio? Then working with the pricing to monetise that. And then the pricing team needs those different firms to then help position the brand using, I think we've discussed this before frame and anchoring techniques. So that they know that tiering system is correct. And then they can adjust the price bandwidth and price tiers according to Business Intelligence that flows through the business through the pricing team. Then they can optimise their prices, their promotions on an ongoing basis. On this podcast, we often talk about a value culture and understanding the value that you offer. I think in this example of different brands tailored to different segments, this is of paramount importance. The only reason to have the different brands and hotel industry is because of the value it offers. There's no other reason to do it. If you've got an understanding through market research or whatever else of the value that you offer matching a consumer demand. That is the entire business model. I suppose it's a good way for people to remember when you're thinking about a value culture just think of these hotel brands, why they exist? and the fact that they purely exist to meet that pricing requirement. Remember this very much applies to B2B because they too are going through a lot of consolidation. They're thinking about buying up various brands either as a competitive tactic or strategy and even to expand their product portfolio. But it's remembering very much about positioning, tiering. How you're going to structure your pricing to ensure that you do make money out of the brands. And they don't end up biting you and leading to margin loss over time.