BTL (Below-the-line), or CVM (Customer Value Management), or Segmented Pricing are all buzzwords that almost all business people heard about, but…What is the real value of CVM/BTL Pricing for the business?I will demonstrate it through a simplified example, so keep in mind that there are many different ways of applying it and this is just an example of a Business to Consumer model which also has above-the-line/open market offers.
So, let’s consider in this example an online retail store.
In this model the ATL (Above-the-line) price is the one presented to all unidentified customers that are surfing the webpages of the online retail store looking for great deals.
The ATL price tend to be aligned with the Demand and Supply curves intersection (Price vs. Quantity), since it is the market equilibrium point.
Although the online business is extracting relevant profit with the ATL proposition, as you can see in the graphic above, the company is not maximizing their overall profit and revenue potential.
How to improve business efficiency and extract more revenue and profit from the market?The business efficiency can be improved through Customer Value Management (CVM), where it can be developed Segmentation Analysis, Targeted Marketing and also Targeted Pricing, communicating tailored offers to those customers through Below-the-line channels, where only selected customers will be exposed to personalized discounted offers.
The company through CVM efficiency improvement will now have multiple supply curves to address different segments that were not willing to pay the ATL price.
So, BTL discounted offers managed through Targeted Marketing, Targeted Pricing and Targeted Communication will generate incremental revenue and incremental profit, since the customers engaged with the online store will increase, generating more sales.
In this example of the online store, how it can be implemented?
- The first step will be always through data analysis; in this example the online store may explore different data sources. Examples: The customer's accounts details in the store, their previous purchase records, or the website cookies that track the pages that the customer visited without buying the items, and others.
- From the data analysis previously described, the online store may now identify different customer segments and deliver to them personalized product/price proposals with the support of revenue/margin optimization models.
- And finally, the tailored offer must be communicated to the customer through a BTL channel (example: newsletter) so it may be promoted individually as an exclusive promotion only valid for that customer.
Following this approach, the online store can now explore new segments that before were out of reach from the ATL proposition, since although they had interest in the product, they were not willing to pay the ATL price and as shown in the graph below, the company will be able to increase their revenue and profit.
The Risk and Challenge…
… It is critical to avoid impacting customers that were willing to pay the ATL price with the BTL discounted prices.If the segmentation analysis and/or execution are not properly executed, there is a high risk of cannibalization of the ATL revenue by the BTL discounted propositions, therefore leading to revenue erosion, instead of revenue growth as intended.
Keep in mind that proper Customer Value Management through BTL Segmentation and BTL Pricing require a lot of resources, but also don´t forget that the revenue and profit growth opportunities through BTL are also huge.
Note that Customer Value Management (CVM) is not only about BTL discounted offers and this case is just a basic example of how CVM can bring incremental value to a company.
