How to Respond to Market Changes in Pricing, Distribution & Advertising
A surging competitor is dropping their prices by 20 percent. Distribution is dropping as a key retailer is closing stores across markets. A flood of new advertising tactics are becoming available. Which of these market changes should I respond to? How should I respond to them? How will they impact my business?
These are just a few examples of the common issues businesses are facing. In today’s turbulent marketplace, decision makers need a comprehensive and effective way to weather the storm. Recently, one of our customers, an appliance manufacturer, approached us about using our software – Concentric Market® – to address all of them. By building a market simulation, they were able to better forecast the likely impact of all these changes on their portfolio of brands. Here is a more in-depth look into the case.
How do you respond when a rising competitor floods the market with inventory and cuts prices?
When a competitor starts gaining market share by cutting prices, there can be a lot of pressure to respond in a way that protects share without compromising margins.
Through simulation, the team was able to incorporate historical pricing and sales data for their brands and their competitors. This information, along with other key product attributes that differentiate the brands, allowed them to pinpoint the sensitivity of consumers to pricing fluctuations. Market simulation also allowed them to test out the most effective pricing and marketing responses to shield their brands’ market share from the surge.
The team tested out pricing reductions that matched the competitive price cut, adapting their product features, ramping up advertising spend to various levels, and creative messaging adjustments. Through testing various combinations of these levers, they were able to identify the least costly way to protect their share.
With an advertising messaging strategy that highlighted new product features, the team was able to identify how to maintain share with only a minor increase in discounts. They did not have to discount to match the competitor’s new pricing, which preserved margins.
What do you do when your leading retailer that accounts for roughly one-fifth of the distribution starts closing stores?
As the landscape for retailers evolves rapidly, businesses face challenges regarding the most effective way to distribute their products. Our customer faced this issue as a major retailer began closing stores, and again the question was how to respond.
By including the various retailer channels within the simulation, the team was able to forecast how shifts in the retailer environment would impact market share for their brands as well as their competitors. This provided the organization with the ability to understand how to reorient their distribution strategy in light of the closing stores.
The team was able to run what-if experiments to test the impact of promotional activities at various retailers. Co-marketing and sales associate-geared efforts at different levels were tested for each of their brands and retailers. This allowed them to identify how they could shift the market demand from other retail channels in their favor.
By updating their promotional strategy for each brand at other retailers, our customer was positioned to preserve their market share despite losing a major distribution channel.
Proliferation of Advertising Options
How do you respond to the multitude of new advertising options that are becoming available?
In a world where you can no longer count marketing channels on one hand and with increasing fragmentation of media options, advertisers need more comprehensive methods to evaluate marketing tactics. Our customer was looking to improve the return on their marketing investment by taking advantage of new touchpoints.
The team used their own marketing data along with syndicated data on competitive marketing to evaluate the effectiveness of their own marketing activities versus their competition. The model then calibrated this data to historical sales in order to estimate the impacts of all types of channels and tactics.
Using the market simulation, they conducted sensitivity analyses for different levels of investment in new digital and in-store tactics to see which tactics were most impactful and at what levels they hit diminishing returns. By evaluating all advertising options being used in the market, our customer was able to integrate new tactics into their marketing plan to increase their return on investment.
Simulate Markets to Forecast Outcomes
Every day businesses are faced with finding the answers to these types of questions. Historically, they have been solved using silo-ed data and gut instinct on which scenario will produce the best possible outcome. Today, it is possible to simulate markets and forecast every possible scenario in order to feel more confident in every business decision. This is what we do here at Concentric. Our software empowers organizations to understand how market changes are likely to influence their businesses and empower decision makers to respond, and wheather their storms with confidence.
You can read some of our other case studies here.
John directs training on Concentric Market and provides guidance to our users on setting up market simulations, using various data sources, validating simulation models, and applying simulation to answer key questions. With a background in engineering and quantitative risk modeling, he provides analytics insight to our users through direct interactions with our customers and efforts to continuously improve Concentric Market algorithms.