Case Analysis: Pricing the product

Unfortunately, I couldn't attend the marketing class on pricing strategy. While browsing through a relic of history known as previous year's Marketing 280 blog (b'cause no one reads it these days), I came across a thought-provoking case question developed by Mr. Osama Hafeez (yes alone), Business junior, pertaining to the pricing strategy of a product. Here's what he has to say:

Case:

If I say I have made an innovative product, it's totally a new product concept, and I want to price it. The economy is in downturn (recession). How should I price the product? Of course, the price would be above the cost line. Normally, the companies set economy-inspired prices. But is this a sound strategy? Do customers always want cheapest prices?
Can lower price actually hurt rather than helping? Will it generate long-term negative perception about the product? (Example: Imagine Mercedez Does that)

(Note: This case has been totally developed by me (Mr. O. H.) and I want an “awesome” discussion regarding this topic (so do I).)

Read the comments of your class fellows here. I don't know anything about the pricing concepts, so what's your answer to his queries?

TYPES OF BUSINESS ORGANIZATIONS

BAISCALLY BUSINESS CAN BE DIVIDED IN THREE BASIC CATEGORIES. THESE ARE

• PROPRIETORSHIP
• PARTNERSHIP
• CORPORATION

PROPRIETORSHIP:- A PROPRIETORSHIP HAS A SINGLE OWNER,CALLED THE PROPRIETOR. PROPRIETORSHIP TEND TO BE THE SMALL RETAIL STORES OR PROFESSIONAL BUSINESSES SUCH AS PHYSICIANS, ATORNEYS AND EVEN ACCOUNTANTS.

PARTNER SHIP:- A PARTNER SHIP JOINS TWO OR MORE INDIVIDULA AS CO OWNERS. EACH OWNER IS A PARTNER. EXAMPLES OF PROPRIETORSHIPS CAN BE THE EXAMPLES OF PATNERSHIP AS WELL.

CORPORATION:- A CORPORATION IS A BUSINESS OWNED BY STOCK HOLDERS OR SHAREHOLDERS. THESE ARE THE PEOPLE WHO OWN SHARS OF OWNERSHIP IN THE BUSINESS. IT IS A LEGAL ENTITY DISTINCT FROM ITS OWNERS.PEOPLE CAN INVEST IN CORPORATIONS WITH LIMITED PERSONAL RISK. EXAMPLE IS COCA-COLA

FINANCIAL CRISIS 2009

FINANCIAL CRISIS BY WASIM ABBAS
Economic activity is the production and distribution of goods and services. This economic activity can be said as business. Economic (business) activity is a cyclic process and can be defined, as it is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. This cycle consists of four phases1- boom period of very rapid economic activities and high revenues i.e. climax of economic activity. Factors of production are almost completely utilized but due to rise n demand investors keep on investing and at last returns to these investments start to diminish and even diseconomies of scale take place and brings recession (decline to business activity) secant phase of business cycle. Unemployment increases, investments goes down, when recession remains for a longer period it becomes depression third phase of business cycle. In this phase characteristics of recession become really swear. Now the masters of the economy take serious measures for the recovery of sick economy. This recovery phase is actually the fourth phase of business cycle.
Today through out the world economy is in recession and this recession has been given the name of slow motion recession. All the economies of the world are in crisis. Reasons behind these crises are different in different countries. Being the only super power of the world USA’s economy has a large impact on the rest of the economies of the world. It can be stated that recession started from USA when its banking system was going to collapse. A number of big banks and mortgage lenders had been lending 'sub-prime' mortgages, in other words mortgages to people who were bad financial risks and without proof of income, on properties which were possibly not good securities and in amounts that exceeded the valuations of the properties. Collapse of these institutions also affected all the other institutions that had investments with them. The result was essentially a domino effect felt all over the globe. Same situation appeared in United Kingdom as a result all economies start to decline. For the last few years America is continuously on the so-called war on terror. According to a rough estimate World Bank has not created as much loans as expenses have been made in wars against Afghanistan and Iraq. OPAC monopoly in petroleum market has charged many times more than the actual price as a result cost of production has gone up and investments are decreasing day by day.
Pakistan and Pakistani economy is though in recession and even depression since his birth in 1947.Pakistan is the country renowned to be run by foreign aid (dependent growth). In our economy US aid plays a vital role but when USA is in recession means Pakistan is in recession. For Pakistani recession certain other reasons are playing vital role. These reasons are improper utilization of scarce resources, deficit budget due to non-developmental expenses of our government; we are irrational consumers with high propensity to consume, electricity crisis has destroyed our industrial sector, unable to provide peaceful environment to foreign investors, corruption in the collection and allocation of taxes, miserable political situation, hold of few investors in stock market. Another important reason behind our economic crisis is the influence of the government officials on State bank of Pakistan. Due to this influence state bank is creating money many times more than the reserves. Due to this supply of money has gone up and its value has gone down. Conversion of black money into white and our deposits in foreign banks has brought a swear decline in our economic system

Are "service efforts" meeting buyers expectations?

The question: Do 'service efforts meet buyers expectations'?

"Just 40% of consumers say companies frequently or always meet their service expectations, according to Accenture's survey of more than 5,000 people in 12 countries. That's down from 45% in 2008 and 53% in 2007, the consulting firm says."

Source: Accenture 2009 Global Consumer Satisfaction Survey.

How to remain ever more creative while protecting your ego from egoism?

The talk speaks for itself. (Notice: No PowerPoint. The magic of storytelling.) Basically, the author and creative writer, Elizabeth Gilbert talks "about a different way to think about creative genius". Essential for those busy in creative acts and groundbreaking for those willing to be creative.

(Visit the site if view is not perfect: http://www.ted.com/talks/view/id/453)

9 Reasons why brands fail on Twitter / Social Media

If you’re a brand and you’d like to harness the power of social media (via Twitter), its honestly, a difficult situation to be in. Because Twitter is a community where the signal to noise ratio is really huge and you could make out the difference between spam and a genuine guy in the minimum possible time compared to any other social media channels.

For the same reason, life for brands on Twitter is tough for sure but not “un achievable” a target, or so do I prefer to believe. And I can substantiate my stand.




Why or How does brands fail on social media ?
1. When they don’t get “social”
Obviously, there is no “power” held with popular people on social media, if at all there is anything that makes them popular, its because they are social. They interact, discuss, learn, make noise and have fun. Its because people like to have them within their circle of friends. So when brands get reluctant to get social, they fail.

2. When they talk only about the product.
Some brands hop on to Twitter hoping that they can shout about their products, and get people interested. That’s fine as long as you are an established brand like Coke or Obama. People will keep waiting for your updates, and they are okay if you only talk about yourself. But if you’re a brand that’s struggling to get attention, you got to mix it up until you reach an authority.

3. When they don’t answer, where they’re supposed to.
And don’t expect people to get all nice with you. They’ll ask questions, criticize or even bad mouth you. But all they want are answers. And when you don’t answer them at the right time, people will strike you off the list of their “trusted” friends.

4. When they don’t accept mistakes.
Accepting mistakes are a great way to get close to people. I think its the most powerful and effective tool I know to win someone’s heart. Now, don’t get blind that discussing mistakes will mar your reputation. No. That’s a big mistake, when you accept and discuss mistakes, the one portion of the community who are “willing to befriend” you will stick with you. The other portion of critics will anyway go away, if you discuss it or not.

5. When they don’t understand people.
Brands exist because people use them. When they fail to understand people, they lose the game. And to understand people, you needn’t take mass psychology classes, just behave like you are one among them. When you fail to do that, the gap between the brand and user widens.

6. When they don’t give value to the followers.
Being a good brand is half task done. But that’s not enough. You got to give value to your followers. May be an exclusive discount offer or an exclusive product review ? Use the principle of divide and rule. Give value/ Reward to your followers – leave the carrot dangling for the cynics – Leave your critics with no options. That would be a great way to make things interesting.


7. When they fail to create win-win situations with people
Another strategy that’s a 100% winner all the time is creating opportunities and letting people win. Its easy to play it, but its not easy to take the initiative. Creating win-win situations is a must for any brand to succeed, and its one of the few ways available where you can get the users/followers involved. A nice example would be the “Tastecasting” thing that happened at a restaurant recently. Where a new product ( I guess pizza) was introduced to a bunch of tweeps from the locality. The restaurant could get a cost effective way of advertising their products while the tweeps felt happy that they were being treated exclusively as elite. Classic win-win situation.

8. When they are bothered at all.
Okay, so if you aren’t bothered at all about your users/people, you better get out of the way. This is hard to imagine but there are folks out there who don’t give a damn about what people think about them. I think this is a lie and only a big damn excuse.

9. When they have bad products.
Obviously, social media isn’t a place where you can expect magic to happen if you have a failed product. If you are one, better try rebuilding your brand and not pushing the same thing across to people.
GM Reinvention is a similar project that’s come out recently. When it met with the worst times in business, it embraced social media and came up with this new idea of limited products and introduced it through social media. Its getting great responses to the website now and I think this is a great way to rebuild your brand.

So, essentially, In Social Media, brands just don’t remain brands as in traditional media. They got to understand the pulse of the crowd and morph themselves in to a more..well “social” form to be successful one.

The above information is related mainly to chp8 of text book.on page212 it says building and managing brands is marketer's importanttask.so, to market brands on social media a marketer must must keep in mind the above points.point2 relates to marketing myopia too(chp1).by paying more attention to product instead of diverting attention towards brand the companies lose consumer's interest.the information is taken from a blog.to view comments please visit http://www.dailyseoblog.com

The Health Drink War!
From the beginning, the health drink from GSK (GlaxoSmithKline), Horlicks, has been traditionally targeted at elders and positioned as a 'great family nourisher'. However, about five years ago, the communication was changed to 'pleasurable family nourisher' with the introduction of different flavours such as chocolate, vanilla and elaichi. The TV commercial had children going around the town, cheering - Epang! Opang! Jhapang! - a chant without any meaning. However, the TV commercial showed their mothers deciding on the choice of health drink.
Horlicks' competitor, Complan, promised to make the kids taller. Shorter kids' friends coaxed them to request their mothers to give them Complan. Now, Horlicks has gone a step further in promising not only height, but a stronger body and a sharper mind. Horlicks wants the children to decide on their health drink. The new campaign for Horlicks gives the kids a motto: 'Badlo Apne Bachpan ka Size'.
The new TV commercial has Darsheel Safary, the child protagonist of Taare Zameen Par, in the lead. Safary and his friends are on a mission to change things they don't like and question age-old practices around them.
Is Horlicks taking kids on a rebellious path? Prashant Pandey, General Manager, Marketing, GSK, disagrees. "Kids, today, are different from their counterparts five years ago. They have their choices and have taken the purchase decision in their own hands. They are confident of what they are doing and what they want to do," he says. Safary was taken as the lead for the TV commercial with that thought in mind.
Swati Bhattacharya, Senior Creative Director, JWT India, the agency handling the account, says, "Darsheel represents the attitude the kids have today. He dared to question the Filmfare Awards with questions such as why he wasn't nominated for the Best Actor in the main lead award, instead of being nominated in the Children's category. Children today want to create opportunities and have more autonomyPrashant Pandey adds, "There is nothing rebellious about the ad. Even Nike's 'Just Do It'' has a positive aspect to it. Horlicks as a brand is conscious about its image and doesn't want to be rebellious. It is a portrayal of the confidence of
the kids today and Horlicks can help them achieve what they want in a positive way. Even in the TV commercial, Horlicks is not portrayed as an aid, just an onlooker or nutrition inspector of childhood. Horlicks is their playmate which believes in their philosophy and stands as an accomplice to their intentions."
According to Prashant Pandey, the brief to the agency was - The target group (TG) is a savvy audience with a short span of attention. So, step into their issues, get into their skin and raise their issues and concerns.
The TV commercial will be supported by print, radio and on-ground activities and extended to Horlicks' school programme, Whiz Kids Contest. On the digital platform, a site, www.activityindia.com/horlicks, has been launched through which kids can communicate about the things they want to change. The winners with the best ideas will get a chance to compete in the Whiz Kids Contest.
For a short while, Horlicks has also come up with a packaging innovation in which the Horlicks bottle will be placed inside a graphical can to attract attention at retail stores.
At the same time, Horlicks hasn't neglected the elders altogether. It has a sugar-free variant, Horlicks Lite, especially for diabetic patients and those who are health conscious. Besides Horlicks, GSK also has brands such as Boost, Maltova and Viva in the health drinks category. The segment also has competitor brands such as Bournvita (Cadbury), Complan (Heinz) and Milo (Nestle).
On the other hand, the Horlicks (GSK) ad in NTV claimed, "Children have become taller, stronger and sharper. The Horlicks challenge - now proven!"A slightly different version of the Horlicks ad aired in Zee Bangla, an Indian regional TV channel (it would have been banned if it were running on a national channel) goes like this:
Scene outside store. Mother and adolescent child duo - 2 pairs; one Mother's bag showing a refill pack of Complan and the other Mother's bag showing a Horlicks bottle (Both very very Clearly - no pixilation, no attempt to hide whatsoever). The spot goes on with the Complan boy saying, my health drink has 23 nutrients, how much does yours have? To which the Horlicks boy's answer is 23 nutrients and also something else.
The Complan boy goes on to say, Mine makes me 'Taller' with the show of measuring up the height on one's shoulder at the Complan ads, the Horlicks boy replies, mine makes me 'Taller, Stronger & Sharper'The Complan boy then says, mine costs Rs. 178 and the Horlicks boy replies, mine costs only Rs. 124 (please pardon, if the prices are off by a few rupees). The Complan boy then jubilantly says, Mummy, in this case we are higher, right with the Mother making a grimace of I've-been-had kind of look.
The Ad ends with a couple of people carrying a Horlicks billboard with the 3 tenets of Taller, Stronger & Sharper clearly written in the background."
The truth emerged after both Nestle and GlaxoSmithKline claimed that the ad had been broadcast in the UK without their knowledge or consent. Interestingly, GSK said that its claims were accurate for "children in that part of the world" and they complied with the regulatory requirements of Bangladesh. A GlaxoSmithKline spokesman added that the Horlicks sold in India is a completely different formulation and product to the one sold in the UK.
The market has always been flooded with ads showing the competitor product in bad light when compared to the company's products. Mostly, this has been displayed in the form of similar coloured product packages or name initials shown in the ad against which the advertising company shows its superiority (functional or emotional). While the viewers could identify, the competitors could never win the legal battle.
But that wasn't enough. The latest Horlicks-Complan tussle sees both products compared in the Horlicks ad. Well, Complan decided to come up with an ad claiming that Complan consumers grew taller at a rate twice than the growth of the non-consumers.
Horlicks has now arrived with an ad which entails a discussion between two kids and their mothers. Both the products are compared based on the nutrients, the claims and finally the price. The "Taller Stronger Sharper" campaign of Horlicks is used to counter the claims of Complan (and pretty convincingly, if you'd ask me!). The ad communicates the price advantage of the product and the functional benifits. Overall, it shows the supremacy of the brand over the competitors
The above article is related to concepts of chp7 mainly.the target market for horlicks is the nourishment drinks market.the market is segmented on the basis of lifecycle and age and geographic segmentation.through horlicks kidz programme and website socially responsible targeting market is being practised.however,through tv commercials GSK is showing irresponsiility by promoting taller and sharper kids more successful.
http://www.coolavenues.com/know/mktg/index.php3

Why Corporate Images are on Fire?

Overnight, things got suddenly changed, over-exposing of corporate credibility and governance, like Richter scales gone wild are thumping the global populace in sheer panic while shattering thousands of mega corporate name brands worldwide.

The good and sober companies of the world not only must weather these credibility quakes but also must project their clean image and stay protected during these monstrous shifts of global image. Today, no matter how big or small the name-identity, it must face some of the principle Laws of Corporate Naming to cope with brand new challenges of corporate-sobriety.
Laws of Respectability
A corporate image and its name must offer a credible personality to its customers and shareholders alike; unless a corporate name is for a circus, the customers are seeking value and shareholders protection of their assets and neither seeking a monkey show.
A business name of any serious enterprise must have an alpha-character to qualify and gain respect projecting sound personality, honesty, integrity, reliability and stability. No room for randomly picked wild names Globe-a-Con, Bluetower, Tomorrow Inc, Guarantee Inc or just Omelet.
Cute, pretentious or humorous names are out. Difficult and obscure names only confuse customers. Looks-alike or sounds-alike names only kill marketing efforts. Twisted spellings hurt search-ability. With major bankruptcies all over the other innocent businesses with similar names are getting trapped.
Currently amongst the modernized world the credibility of financial services has gone to the bottom, as false claims to exotic superiority failed to match the unexplainable performance. So are the related sectors, impacting doubts about everything and gone are the so cherished and respected images of the past corporate identities of the past from hard core manufacturing to incredible services. Where and when will all this train stop?
Last decade, as an example, most banks simply adapted the initialization of their long twisted names and clearly short-changed themselves by eliminating any distinct identity or a respectable image. The analysis of the top 1000 banks of the world is nothing but the most thick, creamy alphabet soup one can dip into. Almost all of them suddenly decided in unison to simply just become initially named banks and now they are all just a bank, falling and crumbling under the stress tests. If ever when the next round of a run on a major American or British bank would occur it will cause havocs for the other hundreds of innocent financial institutions which are still holding a very clean and sober affairs.
Whether the board likes it or not most corporate boardrooms are extremely scared to open a debate on this name image issue while this meltdown is taking this name identity crisis to the very top.
A survey of major corporations around the world shows 87% of corporate names are seriously identical to other business names causing confusion and losing name-equity in the marketplace. The sooner they address this, the better.
For those genuine, honest and progressive corporations of the real economy armed with realistic goals; there are still a lot of new opportunities to stay clear of these corrupt, polluted and damaged name identities. Seek out professionally prepared “Name Evaluation Report” now available online via the internet to assess your national or global marketing needs and make sure that your names are honestly projecting your strengths and can pass the acid test of trustworthiness and exclusive ownership.
The change is always painful, but this global frenzy provides the best time to create a solid global scale strategy. Bad names will kill the business eventually and no amount of advertising will save it, guaranteed. A professional non-partial name-evaluation-report is also the fastest and the cheapest way to know exactly where the promotional monies are being wasted and where the future of your name-identity is really headed. Play by the rules, follow the laws and avoid the flames.

PRODUCT PRICING STRATEGIES

We consider that there are four basic components to a successful pricing strategy:

1. Costs. Focus on your current and future, not historical, costs to determine the cost basis for your pricing strategy .
   
   
2. Price Sensitivity. The price sensitivities of buyers shift based on a number of factors and your pricing strategy must shift with them.
   
   
3. Competition. Pay attention to them, but don't copy them . . . when it comes to pricing strategy they may have no idea what they're doing.
   
   
4. Product Lifecycle. How you price, and what value you provide for that price, will change as you move through the product lifecycle.

Pricing Before You Build
Establishing a pricing strategy is an activity that should be completed beforeyou start product development. The only way to accurately determine how much money you can afford to spend on development, support, promotion and the other costs associated with a product is to analyze how much of that product you will sell, and at what price. That's the heart of a successful pricing strategy.

Use the Right Costs
A successful pricing strategy is your means of making a profit today, not of recovering costs spent a year ago. Don't use the cost of developing your current product as the basis for its price. Instead, use the current costs of developing your new products as the basis of the price of your current product.

Raise Price to Exploit a Reticence to Switch
Once the customer is yours, the situation switches in your favor. One of the resistance factors your salesforce encounters on a new sale is reticence to switch. An existing customer is still unwilling to learn something new, only now they're afraid to switch FROM you, not TO you. They would much prefer to add the functionality of your product enhancements instead of learning how to use something new. For you, price sensitivity is much lower as comfort and ease factors increase. So you might raise your update pricing accordingly.

Study the Competition
Study the competition, but don't react and don't copy them, since they're likely making mistakes anyway. Let them guide you in terms of where you set your boundaries, and in terms of counter offensives you can launch to deal with obvious bonehead pricing on their part. And remember this as well: any move you make can be countered by them just as easily. Don't get caught in a no-win price war--which may hurt your product, their product and devalue your marketplace.

Align with the Product Life Cycle
How high or low you set your price is also going to be driven by where your product is in its life cycle. In general, the farther along you go toward the Decline phase the lower your price should be, since your market will be (a) saturated with product and (b) have increased price sensitivity as their knowledge of the products increases. One technique to consider is unbundling support, training and services from the product itself, which will allow you to lower price without discounting.

Strategic pricing is the effective, proactive use of product pricing to drive sales and profits, and to help establish the parameters for product development. Used wisely it is a clearly powerful tool for successful marketing strategies

summary: i do not agree with the point that you should start pricing your product before you start product development. i think that this is totally absurd because how can you start pricing a product when you dont know what type of cost it is going to incur and what actually the cost is. i think it would be better to judge the cost of the product after it has been completed otherwise, you will be wasting your time evaluating the cost of the product at every level.

read more on: http://www.markitek.com/articles/pricing.htm

The 22 Immutable Laws of Marketing (1993) is a book by Al Ries and Jack Trout.

1. It is better to be first than it is to be better.
2. If you can't be first in a category, set up a new category you can be first in.
3. It is better to be first in the mind than to be first in the marketplace.
4. Marketing is not a battle of products, it's a battle of perceptions.
5. The most powerful concept in marketing is owning a word in the prospect's mind.
6. Two companies cannot own the same word in the prospect's mind.
7. The strategy to use depends on which rung you occupy on the ladder.
8. In the long run, every market becomes a two horse race.
9. If you are shooting for second place, your strategy is determined by the leader.
10. Over time, a category will divide and become two or more categories.
11. Marketing effects take place over an extended period of time.
12. There is an irresistible pressure to extend the equity of the brand.
13. You have to give up something to get something.
14. For every attribute, there is an opposite, effective attribute.
15. When you admit a negative, the prospect will give you a positive.
16. In each situation, only one move will produce substantial results.
17. Unless you write your competitor's plans, you can't predict the future.
18. Success often leads to arrogance, and arrogance to failure.
19. Failure is to be expected and accepted.
20. The situation is often the opposite of the way it appears in the press.
21. Successful programs are not built on fads, they're built on trends.
22. Without adequate funding, an idea won't get off the ground.

summary: these are the 22 immutable laws of marketing. it is a book by Al Ries and Jack Trout. i would certainly agree to the laws that have been presented here and i think these are very important in every aspect of marketing and some of them are general rules too. for eg: failure is to be expected and accepted. obviously, failures are faced by everyone in every aspect of life and not just marketing.