With price moves, I mean the active management of your prices through a process called war-gaming. It contains seven steps and it starts with understanding the competitive dynamics and it's no coincidence that this course about competitive pricing started about your competitors. It's really the starting point. Next is you need to set your own goal, what you're actually trying to solve for and what you're trying to achieve. Ideally, this matches very closely with what the overall business goal is. Too often, I find clients who say fix my pricing without telling me what they're really trying to achieve. Based on that, you try to identify your own potential moves. You then chart possible the competitor moves and then you choose the best possible move to achieve your goal and this really is the chess middle for today introduced previously. Then you execute your move but you're not done yet because then you have to monitor the outcome and competitor responses. Which might change your perception or some of your behaviors of your competitors which might lead to a redefinition of your own goals and so on and so forth. I developed a little example for you to kind of walk you through each of those steps. And the market I picked is residential furnitures. We have to deal with three companies, Smith, Modern, and Cozy. And they sell in three product categories, living room, dining room, and bedroom. And they cater to four customer segments. There are people who rent, there are the first homeowners, family with kids who live in a single family home, and empty nesters. Now, the first thing you want to do is you want to define your market landscape. And you're really setting up your chessboard here because you need to define what each playing field is about. You have in the rows, the product categories, living, dining, and bedroom. And you have in your filed, the segments, renters, first homeowners, and so on. Now for each of those playing fields, you have to determine what is the profit pool. So, I'm not talking about the market size of revenues but really where is the money made in the industry? So, the bubble sizes here define how much money is made. And obviously big means a lot and small means not so much. Now, the next step is you need to map the marketplace onto this. So, for each of the playing fields, we are now saying who is owning what share of the profit pools. So in this example here, Smith has three-quarters of it and Modern and Cozy share the rest. In this example here, Cozy has probably 80% and you see how to read it. Now, what this does tell us is who is really strong in what area? And just to make the game board complete here, we color coded what kind of home turfs is it. And there are fields that are really dominated by one player. And there are other fields that are shared between the rest, two or even three. You can also get fancy and play around with the different shadings around how big the absolute pools are so that you can focus primarily on the solid colored and don't pay too much attention to the smaller profit pools. Now, since we're playing a game, let's stick to this image. I want you to think about your competitors and the game board really like a map where you have competing kingdoms where companies have their home turf, meaning where they make the majority of their money This is really their castles. So, this is segments with large profit pools that are dominated by one of the players. And in our example, Smith has kind of the main castle in the living room for empty nesters, a little bit of a smaller castle in the families with kids. Modern is kind of very strong with the first homeowners and there they have their majority of profits coming from the dining room, a little bit from the living room. And Cozy really is in the bedroom and mostly with families with kids. There are other places on the gaming board which I call grasslands. And grasslands are kind of market segments with a limited profit pool and the shares of the profit are fluid in a sense that there is a lot of give and take happening here. And this gives you, as an opportunity, to manage your overall portfolio better. So, you see here the grasslands and you can see these are kind of mid-sized to smaller sized profit pools that are shared between the players. Lastly, there are deserts, and these are market segments with very small profit pools. They're kind of niche segments that are typically out of focus with very little activity. Now for all of these three types of playing fields, they together create your competitive landscape and you must fully understand the market, the profit pools and the competitive landscape to make your optimal strategic pricing choice. Now that we defined what the landscape is, we can really start looking into pricing and here you want to observe, first of all, what's actually happening. So, I signified here with those little symbols where we find aggressive pricing action or just other important things to know and understand. For example, there's aggressive pricing happening here for the empty nesters in the dining room. And after some digging, it turns out that the different place you try to secure floor spots with the retailers and therefore run heavy promotions. There is a high win rate for Smith in the family with kids in the living room. So, what this kind might show us is that Modern and Cozy, the two competitors, they're maybe a price too high. Cozy is setting the price umbrella for the bedroom. So, out of their stronghold in the family with kids and in the other segments for the bedroom category, they really managed to influence the price level overall. And lastly, there is a lot of aggressive pricing happening in the family with kids in the dining room and the bedroom for the first homeowners. And this was a curious one so we kind of did more digging and what we discovered is that Modern really tries to expand their business from their castle in the category they're strong meaning they're moving literally into a new segment. And at the same time, they're trying to leverage their strength within a segment within the first homeowners and do more business in the bedroom. So, let's wrap this up. I know what's on your mind. Where do you get all this competitive intelligence from? And to answer that question, I'll be back. To learn about your competitors, you really have to put on your detective's head. And since I'm an overachiever, I'm fully tricked out. Now, in all seriousness, how to learn about your competitors? You have to look for the things and it starts with very basic questions, what exactly are they selling? Who are they selling to? Where do they make their money? What are they trying to achieve? What's kind of their strategic goal? Then you have to leverage all the sources that are available. A lot can happen already through observations. You going to have a lot of conversations with people who know either people who work with the you in the industry. Who worked for a competitor in the past. Who just observed the market themselves but also customers. Well, affiliations come in handy because oftentimes they share data among their members. At the end of the day, you'll have to do some of your own estimations. And lastly, some modelling with the computations. And don't dismiss facts and the details, logic and reasoning, intuition and over time you will build experience. And on the last point, try to find yourself a Watson because talking someone through the logic what you think is happening helps a lot. Good luck.
