Panel Write Up: Optimizing Pricing and Distribution Plans
Team ClearHome (Heather Lewis, Jeff Kinney, Mary Ke, Sarah Abramowitz, Sungjoon Kim, Michael Pamphlet)
This past Monday, our class was fortunate to hear from three very accomplished and visionary entrepreneurial thought leaders; Leigh McMillan, VP of Marketing at Avvo, Steve Banfield, Digital Executive at Rightside, and Brant Williams, Founder of Tenacious Offense and Guided Products. The panel was a split discussion, first focused on pricing and distribution and then around customer retention and referrals. Each of these topics is relevant to our class start-ups as we begin to explore what it actually looks like to take our products to market, and retain the amount of growth and engagement that we have established through our digital marketing efforts thus far.
The speakers gave great advice during our discussions of pricing and distribution. They had a lot to say regarding the importance of choosing the right business model to drive pricing strategy, and understanding the pros and cons of online retail channels vs. brick and mortar stores, as well as the importance of SEO as part of distribution strategy.
Before landing on a pricing strategy, it is critical that we think about our business model. For ClearHome, we assumed that our product would be sold as a one-time purchase of the in-home air quality monitoring device and we would provide the app as just part of the deal. However, Brant Williams challenged us to think about whether we were selling the “razor” or the “blade”. In other words, are we focused on being profitable against the one-time purchase of the platform, or is the platform simply the open door for ongoing customer purchasing for services or add-on benefits?
In this vein, Leigh McMillan stated, “Once you have shown people there is something they can take advantage of, you have the ability to show them volume for other solutions. Get as many out there as possible and as we present problems to them with the mobile app, we make money on the backend as the entity providing the solution.” With just a business model, we may not price the device as high-end but instead competitively to increase our adoption. These were great points that our team has now taken into consideration. Similarly, she suggested that we make the app available for free download with limited functions. As users became more engaged with the app they would be encouraged to buy the hardware device in order to receive all the benefits of the product.
In thinking of distribution channels, it matters how we want to cut our profits across distributors and which channel would be most effective at getting the attention of our audience. Traditional retail may not make the most sense for us, considering the high margins taken by the stores and the fact that our potential customers are not yet aware of the ClearHome brand, and our device may suffer from bad placement on big box distributors’ shelves. Instead, we should leverage online retail to go directly to the consumer, and save significantly on shipping (single shipping for an online retailer such as Amazon, versus multiple shipping to a brick and mortar distributor). However, there are pros and cons to selling directly from our site and using other eCommerce platforms, such as Amazon. With our own site, we would not have the brand awareness to reach as many customers as established channels, like Amazon. However, with established channels comes cuts to profits. Online retailers are a friendlier place to distribute. Traditional retail usually results in a $10 sale price if the cost of goods is $1. Approximately 40% goes to distribution costs. Think about Pro.com and Porch, they are serving the connector role between consumers’ money and the services they want.
They also cautioned that if we do elect to go through traditional retail as a distribution channel, we have to be careful to avoid channel conflict. If we decide to later incorporate online sales and start selling our product online for a lower price than in stores, box retailers will be alienated and will be concerned about experiencing a drop in their margins.
We also were reintroduced to SEO as a channel strategy. This was a significant paradigm shift for many people in the class and on our team. Whereas, we often thought of SEO as the amplifier to a channel, Leigh McMillan positioned it as such a vital part of her lawyer business that it essentially was at the top of the channel strategy for her. According to Leigh,”You need to create liquidity in the market.” Her company created a free Q&A space, allowing consumers to get free answers to their questions from actual attorneys. This service was good for both customers (who received responses) and lawyers (whose expert answers worked as free advertising for their services). All the while this resulted in detailed, long-tail content which is valued highly by Google, particularly questions formatted as How Do I…? Leigh was strategic in her formatting, adding key words that would assist in the SEO, and she was careful not to tag duplicate content. Leigh also used referrals and offered a first-time complimentary service to new customers, resulting in more traffic and ultimately more search power to her site. Similarly, this quality SEO allowed her company to initially get around branding and recognition. Once this SEO strategy resulted in significant traffic, they then shifted to accelerating their growth which requires gaining consumer trust, by creating a known, recognizable brand. This multi-pronged SEO strategy could be a critical part of our ClearHome plan, especially with a new product space like home air quality assistants, because the market is not yet saturated.