Pricing as Positioning Strategy
Marketers will often use price as a positioning strategy for their product. When they do this they will usually set the price higher than similar competition in order to give the impression that their brand is of higher quality than the competition. People will assume, whether correct or not, many times that the most expensive version is the best quality. One area in which you see this is in kitchen electrics. Certain brands of kitchen electrics have become somewhat of a status symbol amongst women because it is well known that certain brands are more expensive and assumed to be higher quality. One example of this is in coffee makers. If you compare different versions of the single cup coffee maker, they vary widely in price, but upon closer inspection don't actually differ that much in performance. If you compare the Breville single serve coffee maker (retails at $249 - http://www.surlatable.com/product/coffee+%26+tea/drip+coffee+machines/breville+single-serve+coffee+maker.do?sortby=ourPicks#) to the Keurig version (retails at $169 - http://www1.macys.com/catalog/product/index.ognc?ID=315152&CategoryID=44001) you will notice that aside from having a different style look, they are virtually the same machine, there is no technological superiority in the Breville model. In fact the description for it even states "Featuring Keurig’s patented brewing technology, the innovative shower head delivers the precise amount of water at the perfect temperature for balanced flavor." So simply put, you are getting the same exact thing in a different looking case for an extra $80!
New product pricing
Skimming
The practice of skimming is when a company will charge a high price when their product is first introduced and it is usually accompanied by a large marketing campaign. This strategy is typically used when the company realizes that their product is something that won't be copied immediately so they take advantage of being the only game in town so to speak. One great example of this practice is with new toys, especially if Christmas is coming! If you look at toy ads or commercials now you will notice that Disney is starting to heavily promote a new toy called Dance Star Mickey (http://www.toysrus.com/product/index.jsp?productId=4049903). The toy isn't even in the stores yet, but they are advertising it as a hot new toy and encouraging people to pre-order the doll for $69.99! This is obviously price skimming because they will not be able to charge this price for a dancing Mickey doll forever. They will undoubtedly drop the price significantly after Christmas. This is the tickle me Elmo craze all over again! Which by the way now sells for only $24.99.
Penetration
Penetration is when a firm will charge a low price for their product when it is introduced into the market in order to reach more people by undercutting the competition. This is used a lot in electronics. The newest product where I've noticed this pricing strategy employed is Amazon's latest version of the Kindle. They just released in the last couple of weeks their third generation of Kindle, which is not only thinner and has better features like a microphone, smaller size, longer battery life, more storage capacity, lighter weight and better screen contrast, but it is much cheaper than the competition. This has done more than rock the boat, I think it will sink the ship for a few of the other e-book readers out there that just won't be able to cut their price to this level. Amazon has offered the latest Kindle starting at only $139!
You can view the new kindle here:
http://www.amazon.com/Kindle-Wireless-Reader-Wifi-Graphite/dp/B002Y27P3M/ref=amb_link_353611822_4?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=gateway-center-column&pf_rd_r=0G5WG419JPCZA1FBEA4B&pf_rd_t=101&pf_rd_p=1271573382&pf_rd_i=507846
Odd Number Pricing
Marketers use many subtle tactics in pricing to make us believe something about a product. One example is odd number pricing. For some reason, people will typically assume that something that ends with an odd number is a bargain. One store that uses this marketing tactic very well is Total Wine & More (http://www.totalwine.com/Main.aspx). They have signs in their stores and on their circulars reminding buyers that any wine with a price ending in 97 cents is at their "rock bottom" price. In fact, they hold to this statement so much so that they even exclude anything with a price ending in 97 cents from all promotions and coupons. This is a very effective marketing tool for them because it gives the buyer an immediate feeling of getting a bargain even though they might not know the true value of a certain bottle of wine. I also believe that it increases their sales because people who enjoy wine might buy more bottles than they originally intended if they perceive that they are getting a really good deal.
Loss Leader
Loss Leaders seem to be a favorite marketing tool of the grocery store industry. Every week they send out fliers filled with loss leader deals in the hope that they will entice you into their stores where you will not only purchase that one product at a great price, but you will also purchase other products that are not on sale. Unfortunately for the consumer, the products not on sale are typically no bargain at the grocery store. I found one such example in this week's advertisement from Frys ( http://frysfood.inserts2online.com/customer_Frame.jsp ), you can see in the middle slightly to the right is an add for a 64 ounce bottle of apple juice for only $0.99. As a mom that has bought a lot of juice, I can assure you this is a bargain. A bottle that size would typically sell for anywhere from $3-$5 or more depending upon the brand and store purchased. Frys is not having a moment of kindness for families in offering juice at a low price, they know that someone who buys juice probably also buys other kid foods like crackers, peanut butter, chips, etc. That is what they are hoping you will buy when you come into their store, because the other things will not be on sale and those are the items that they are hoping to make their profit on. I personally have a strong dislike for this marketing tactic because I don't like the idea of someone trying to get me into the store with one thing so they can over charge me on five other things. Unfortunately for the grocery stores this doesn't seem to be a very good tool because their margins are historically small and very few grocers actually make good money.
Multiple Unit Pricing
I must admit, I am the biggest sucker for multiple unit pricing. This is when a store will say if you buy product X it is $5, but if you buy two or more of X it will be $4 per item. I fall for it almost every time! You see this used a lot in clothing stores. I found a good example of it on Targets website in their school uniform section, they have the tag line "buy more, save more." I guess they haven't talked to my father who always told me I couldn't spend myself rich when I told him about how much I saved on my last purchase. If you click on this link (http://www.target.com/Girls-School-Uniform-Cherokee-Short-Sleeve/dp/B003BF7Q8K/ref=sr_1_9?ie=UTF8&searchView=grid5&keywords=school%20uniforms&fromGsearch=true&sr=1-9&qid=1280942510&rh=&searchRank=target104545&id=Girls%20School%20Uniform%20Cherokee%20Short-Sleeve&node=1038576|1287991011&searchSize=30&searchPage=1&searchNodeID=1038576|1287991011&searchBinNameList=subjectbin%2Cprice%2Ctarget_com_primary_color-bin%2Ctarget_com_size-bin%2Ctarget_com_brand-bin&frombrowse=0) you can see how Target has displayed this offer very well. They have colored the text red, just like the price so it guides your eye to read their tag line when you look at the price. In my experience I've noticed that this marketing tactic is typically used when the product is something that is either quickly consumable like food or when it is something that people like to have multiples of the product like clothing or art supplies. You won't see this used much in products that people wouldn't want more than one like an iPod or computer.
Wednesday, August 4, 2010
Sunday, August 1, 2010
Assignment #3
Wal-mart
Wal-mart has more retail locations than probably any other store in the world, yet they still use their website to sell goods to customers and to expand their product offerings. The strategy that Wal-mart seems to apply to their website vs store product selection is that the stores stock items that have high demand and quick turnover, whereas their website will have not only those products, but it will also have a wider selection of goods that tend to be large in size and higher in price . For example, on the website you have a much wider selection of furniture, exercise equipment, Hot tubs, baby gear, toys, etc. A lot of these items such as hot tubs would not be practical to stock in their stores because of their size and the fact that there would be a limited amount of sales at each store, so it is more advantageous to them to use that retail space for a product that appeals to more people and will turn over faster. However, it is economically viable for them to have these items on their website because it reaches a much larger audience than any individual store and they can ship the products to wherever the customer is located.
One thing that Wal-mart does extremely well is distribution of their products and they have figured out how to incorporate that with their website offerings through site-to-store shipping. With their site-to-store shipping you can purchase an item online and opt to have it shipped to the local retail location of your choice. You are then notified upon arrival of your purchase and you can go pick it up at the store, all without being charged for shipping. This is an advantage to Wal-mart because it removes the barrier of shipping costs for consumers that are not able or willing to pay the extra charge and it provides a reason why the consumer has to enter their store and may lead to additional sales while that customer is in their store. I believe this feature to be a win win situation for the customer and Wal-mart.
Ann Taylor
Another retailer that has successfully utilized their website to expand their product offerings to their customers is Ann Taylor. Ann Taylor has two different store chains, Ann Taylor and Ann Taylor LOFT and both have expanded their product lines differently on their websites.
Ann Taylor is known for their classic design and good quality. On the Ann Taylor website the company has managed to expand their business by including a limited selection of classic wedding and special event dresses that complement their typical product mix well. This is something that they probably wouldn't be able to do through their retail stores since it would be a large commitment of floor space for a subset of their customers and it would be replacing clothing that would appeal to most or all of their customers. However, by placing the option on their website it is something that they can offer all year without giving up any retail space. The expansion is also good because it is expanding into an area that usually commands a higher price than regular clothing and so should be a highly profitable expansion of their line.
Visit Ann Taylor Weddings & Events:
http://www.anntaylor.com/catalog/department.jsp?N=1200029&categoryId=3942&loc=TN
Ann Taylor LOFT is geared more towards a younger customer base than Ann Taylor and it is more weekend wear type of clothes, where as Ann Taylor offers more work appropriate clothing including suits. Ann Taylor LOFT expanded their product line by venturing into the maternity wear market. I think that this is a sensible expansion for their product line because their main customer base is women that are in their late 20's to early 40's, which includes the typical range of when women will have children. Their maternity clothing line isn't a far departure from their normal clothing line, so many of the outfits are ones that they already had designed, but just required some modifications to the design to accommodate a pregnant woman.
The only downside that I find for the customer in both the Ann Taylor wedding & events line and the Ann Taylor LOFT maternity line is that a lot of the clothing is noted as online exclusive, which means that it cannot be returned to a retail store location, returns need to be processed via mail. I think that stipulation can be a real turn off to some customers, especially in the special event or maternity markets due to there being a higher chance that the garment won't fit properly. There is a big difference between ordering a tank top online or ordering your wedding dress online! It has to fit perfectly or the customer will hate it (and tell all of her friends the story).
Visit Ann Taylor LOFT Maternity:
http://www.anntaylorloft.com/catalog/category.jsp?N=1200041&pCategoryId=3363&categoryId=639&Ns=CATEGORY_SEQ_639&loc=mp1a&gridSize=sm&showAll=true
Harrods
Harrods is one of, if not the, most famous department stores world-wide; but there truly is only one real Harrods department store and that is London. For Harrods, having a website serves multiple functions two of the most important are providing tourist information (yes it's a BIG tourist destination) and selling their products to customers across the globe. Having a website allows Harrods to provide products to their customers in 40 different countries, instead of being limited to just the local London area. This expansion of their reach is obviously very beneficial to them since they are well known around the world, so some demand was already present in these markets prior to their creation of a website. While there are a lot of products available on their site, there are still some that you can only get in the store; those tend to be the more exclusive items that are designed for the rich and famous crowd. For example, if you look at their store guide on their website you will see that on the fifth floor they actually have an entire section dedicated to bulletproof clothing that they describe as being "tough enough to withstand fire from automatic weapons" and "unobtrusive enough to be worn at parties."
http://www.harrods.com/harrodsstore/
Wal-mart has more retail locations than probably any other store in the world, yet they still use their website to sell goods to customers and to expand their product offerings. The strategy that Wal-mart seems to apply to their website vs store product selection is that the stores stock items that have high demand and quick turnover, whereas their website will have not only those products, but it will also have a wider selection of goods that tend to be large in size and higher in price . For example, on the website you have a much wider selection of furniture, exercise equipment, Hot tubs, baby gear, toys, etc. A lot of these items such as hot tubs would not be practical to stock in their stores because of their size and the fact that there would be a limited amount of sales at each store, so it is more advantageous to them to use that retail space for a product that appeals to more people and will turn over faster. However, it is economically viable for them to have these items on their website because it reaches a much larger audience than any individual store and they can ship the products to wherever the customer is located.
One thing that Wal-mart does extremely well is distribution of their products and they have figured out how to incorporate that with their website offerings through site-to-store shipping. With their site-to-store shipping you can purchase an item online and opt to have it shipped to the local retail location of your choice. You are then notified upon arrival of your purchase and you can go pick it up at the store, all without being charged for shipping. This is an advantage to Wal-mart because it removes the barrier of shipping costs for consumers that are not able or willing to pay the extra charge and it provides a reason why the consumer has to enter their store and may lead to additional sales while that customer is in their store. I believe this feature to be a win win situation for the customer and Wal-mart.
Ann Taylor
Another retailer that has successfully utilized their website to expand their product offerings to their customers is Ann Taylor. Ann Taylor has two different store chains, Ann Taylor and Ann Taylor LOFT and both have expanded their product lines differently on their websites.
Ann Taylor is known for their classic design and good quality. On the Ann Taylor website the company has managed to expand their business by including a limited selection of classic wedding and special event dresses that complement their typical product mix well. This is something that they probably wouldn't be able to do through their retail stores since it would be a large commitment of floor space for a subset of their customers and it would be replacing clothing that would appeal to most or all of their customers. However, by placing the option on their website it is something that they can offer all year without giving up any retail space. The expansion is also good because it is expanding into an area that usually commands a higher price than regular clothing and so should be a highly profitable expansion of their line.
Visit Ann Taylor Weddings & Events:
http://www.anntaylor.com/catalog/department.jsp?N=1200029&categoryId=3942&loc=TN
Ann Taylor LOFT is geared more towards a younger customer base than Ann Taylor and it is more weekend wear type of clothes, where as Ann Taylor offers more work appropriate clothing including suits. Ann Taylor LOFT expanded their product line by venturing into the maternity wear market. I think that this is a sensible expansion for their product line because their main customer base is women that are in their late 20's to early 40's, which includes the typical range of when women will have children. Their maternity clothing line isn't a far departure from their normal clothing line, so many of the outfits are ones that they already had designed, but just required some modifications to the design to accommodate a pregnant woman.
The only downside that I find for the customer in both the Ann Taylor wedding & events line and the Ann Taylor LOFT maternity line is that a lot of the clothing is noted as online exclusive, which means that it cannot be returned to a retail store location, returns need to be processed via mail. I think that stipulation can be a real turn off to some customers, especially in the special event or maternity markets due to there being a higher chance that the garment won't fit properly. There is a big difference between ordering a tank top online or ordering your wedding dress online! It has to fit perfectly or the customer will hate it (and tell all of her friends the story).
Visit Ann Taylor LOFT Maternity:
http://www.anntaylorloft.com/catalog/category.jsp?N=1200041&pCategoryId=3363&categoryId=639&Ns=CATEGORY_SEQ_639&loc=mp1a&gridSize=sm&showAll=true
Harrods
Harrods is one of, if not the, most famous department stores world-wide; but there truly is only one real Harrods department store and that is London. For Harrods, having a website serves multiple functions two of the most important are providing tourist information (yes it's a BIG tourist destination) and selling their products to customers across the globe. Having a website allows Harrods to provide products to their customers in 40 different countries, instead of being limited to just the local London area. This expansion of their reach is obviously very beneficial to them since they are well known around the world, so some demand was already present in these markets prior to their creation of a website. While there are a lot of products available on their site, there are still some that you can only get in the store; those tend to be the more exclusive items that are designed for the rich and famous crowd. For example, if you look at their store guide on their website you will see that on the fifth floor they actually have an entire section dedicated to bulletproof clothing that they describe as being "tough enough to withstand fire from automatic weapons" and "unobtrusive enough to be worn at parties."
http://www.harrods.com/harrodsstore/
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