Rock bridge Chief Methodologist Charles Colby spoke earlier this month at the AMA Frontiers in Services Conference on: “Optimizing the Profitability of Services Products Using Trade-off Analysis (Product Optimizer™)”. In the presentation, he noted that legal and competitive factors are creating a new urgency among services providers to redesign their products with a goal of optimizing their profitability. For example, federal laws restricting the fees charged by banks results in a need to change product features and price structure in order to ensure products are still profitable. Similar challenges exist in diverse sectors such as communications, travel and non-profits.
Product design decisions are typically guided by research using a trade-off methodology, such as our Rocktimizer™ conjoint approach which can examine many product features, price elements and service features simultaneously. The output is a user-friendly simulation tool that shows managers the impact on demand of modifying pricing and features. But what is the optimal product? In order to find a true optimum, it is necessary to build a profitability model and incorporate it into the demand simulator. This allows management to test the impact on net profit when changing features and pricing. For example, a costly benefit added to a product should draw sufficient market share or customer retention to pay for the reduction in profit per unit.
The AMA Frontiers in Services is the leading conference for researchers who study service and service research issues. It includes participants from over 30 nations. Rockbridge has made the largest number of practitioner presentations in the conference’s 20 year history.
Written by: Charles Colby, Chief Methodologist