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Mar 2015 - Perspective - Doc # RI254893

Perspective: Behavioral Economics — Failing Fast to Avoid Race-to-the-Bottom Pricing

Authors: Allan Fromen, Greg Girard

This IDC Retail Insights Perspective analyses the use of behavioral economics (BE) in improving demand management strategies and tactics. Procter & Gamble brought "failing fast" to product management well over a decade ago. Jettisoning lousy, new product ideas sooner meant reallocating freed up R&D and brand management resources to more promising programs sooner, bringing better new products to market faster, and increasing chances of gaining market leadership in each product category. Today fail fast is a warp-speed staple of Web site design and the sine qua non of successful digital marketing and promotion, with a twist — that it's okay to fail small and often too. High-speed algorithmic pricing, a merchant's chore, exploits the same principle. To borrow a phrase from the days of business process reengineering, algorithmic pricing might just be a "pave the cow paths" approach when applied with the same logic of mainstay pricing strategies and the merchandising strategies that set the role of pricing.

We believe there's a case to be made that fail fast needs to be blended with omni-channel behavioral economics to shift the terms of reference for engaging customers away from pricing to other attributes of an offer. This approach can align offer attributes to the cognitive biases by which consumers form preferences and habits and make decisions. Product attribute-oriented consumer decision trees (CDTs) fall short of the mark. The emotional attributes of the purchase are the target to hit, not the selling attributes of the offer.

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