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Diagnosis Question - Why have prices been going down?

If I need to brainstorm why our client has lowered the prices, what could reasons besides boosting/ keeping volume of units sold be?

If I need to brainstorm why our client has lowered the prices, what could reasons besides boosting/ keeping volume of units sold be?

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Hi!

As usual, brainstorming is best done via logical disaggregation. At the highest level, lowering prices could be (a) a concsious decision or (b) an uninetended consequence of another decision.

  • Under (a), you further differentiate into
    • (a.1) pro-active strategic decisions (e.g., intention to maximize penetration, attempt to price out competition due to a structural cost advantage, etc.),
    • (a.2) reactions to something that happened externally (e.g., following competitors, reacting to an improvement of competing product quality which we can not match, etc.)
  • Under (b), you could e.g. think of a change in compensation structure that was applied to the sales teams, linking their bonuses heavily to volumes sold (---> this might have caused a misalignment of incentives, pushing sales teams to give price discounts to push volume in order to inflate their own bonus cheques)

This is how brainstorming works best: first set up the top-down logic, and then develop ideas against each logical sub-topic.

Cheers, Sidi

Hi!

As usual, brainstorming is best done via logical disaggregation. At the highest level, lowering prices could be (a) a concsious decision or (b) an uninetended consequence of another decision.

  • Under (a), you further differentiate into
    • (a.1) pro-active strategic decisions (e.g., intention to maximize penetration, attempt to price out competition due to a structural cost advantage, etc.),
    • (a.2) reactions to something that happened externally (e.g., following competitors, reacting to an improvement of competing product quality which we can not match, etc.)
  • Under (b), you could e.g. think of a change in compensation structure that was applied to the sales teams, linking their bonuses heavily to volumes sold (---> this might have caused a misalignment of incentives, pushing sales teams to give price discounts to push volume in order to inflate their own bonus cheques)

This is how brainstorming works best: first set up the top-down logic, and then develop ideas against each logical sub-topic.

Cheers, Sidi

Hi sidi, thanks for the reply. How do I train this mode of thinking? Is there any way? :) — Anonymous A on Feb 22, 2020

I mean this brainstorming-like thinking pattern... — Anonymous A on Feb 22, 2020

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Apart from that, the client could be thinking of:

  • Predatory pricing - undercutting competition to drive it out of business
  • Take out excess inventory
  • Re-positioning brand/product to a lower pricing point

Cheers, Francisco

Apart from that, the client could be thinking of:

  • Predatory pricing - undercutting competition to drive it out of business
  • Take out excess inventory
  • Re-positioning brand/product to a lower pricing point

Cheers, Francisco

(edited)

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I would divide my issue tree into internal (gain market share, enter a new segment, ...) and external factors (competitive pressure, change in customers behavior/willingness to pay, ...)

Best,
Antonello

I would divide my issue tree into internal (gain market share, enter a new segment, ...) and external factors (competitive pressure, change in customers behavior/willingness to pay, ...)

Best,
Antonello

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There's two (related) ways to look at this:

1) What prompted them to lower prices

2) What are they trying to achieve?

For #1, this could be competition lowering prices, competition beating them, cost cutting achieved in the organisation, customers not buying the product etc.

For #2 their response to cut price would be in direct response to the above. So, in order, match competition, try and undercut competition, reflect cost cuts to try and gain more customers, try and sell more product (increase Q).

And so on and so forth

There's two (related) ways to look at this:

1) What prompted them to lower prices

2) What are they trying to achieve?

For #1, this could be competition lowering prices, competition beating them, cost cutting achieved in the organisation, customers not buying the product etc.

For #2 their response to cut price would be in direct response to the above. So, in order, match competition, try and undercut competition, reflect cost cuts to try and gain more customers, try and sell more product (increase Q).

And so on and so forth

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Hello!

Can you please clarify: the promp is "why did our client lower prices"?

I am double checking since it sounds bizarre to me: normally those open questions are related to things on the competence or the market... not the client, since the client himself can tell you the drivers (they would not hire a consultant to explain their own behaviour). Normally these promps are more in the direction of "sales have been declining, costs have increased by X%, etc."

Hope it helps!

Cheers,

Clara

Hello!

Can you please clarify: the promp is "why did our client lower prices"?

I am double checking since it sounds bizarre to me: normally those open questions are related to things on the competence or the market... not the client, since the client himself can tell you the drivers (they would not hire a consultant to explain their own behaviour). Normally these promps are more in the direction of "sales have been declining, costs have increased by X%, etc."

Hope it helps!

Cheers,

Clara