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November 13, 2019

MKTG5604

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PLACE+PRODUCT + PRICING

Disruptive Ideas Post Review | Distribution Mini-Lecture

Product Mini-Lecture | Break | Pricing Mini-Lecture | Case Discussion: Uber

Project Breakout Activity | Final Thoughts

AGENDA

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GENERAL DISCUSSION

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Identify opportunities, threats, and challenges that will inform your strategy.

Articulate your strategy. Establish your plan.

Monitor Success.

The final elements of forming a marketing strategy.

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Learning Goals

● Explain examples of disruption in distribution.

● Apply product development concepts to a project.

● Apply pricing methodologies to a project.

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Who are the next industry disruptors?

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DISTRIBUTION

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PLACE

Refers to the method(s) that a firm uses to make its goods & services available to customers.

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Amount of US GDP that passes through channels of distribution.

50%

10 There are opportunities for innovation across distribution channels.

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CONVENTIONAL FARMERRECEIVES $0.10 BROKER

WHOLESALER

EATERPAYS $1.00

RETAILER

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LOCAL FARMERRECEIVES $1.50

ONLINE MARKETRECEIVES $1.50

EATER PAYS $3.00

Curated Online Market:Eaters pay more; farmers make more money.

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EXPENSIVE CONFLICT TIMING

Problems with traditional distribution highlight opportunities for innovation.

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Globe pendant light

$20 less expensive. Ships within 3 – 5 business days

Globe pendant light

Ships within 4 – 6 weeks and “maybe more because its on back order”

CENTER CITY FURNITURE STORE

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PRODUCT

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“Anything that can be offered to a market to satisfy a want or a need, including physical goods, services, experiences, events, people, places, properties, organizations, information, and ideas.”

-Phillip Kotler, Marketing Management”

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BASICBasic requirements for participating in the category

EXPECTEDThe basic requirement and the minimum that the customer expects in the category

AUGMENTEDIncludes value-enhancing features that differentiate the product from others

POTENTIALIncludes all possible augmentations & additions that cover “everything that might be done to attract and hold customers”

Firms develop products to align value proposition, brand positioning, and price .

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Product Design Applied to Airline

Industry

Core:

Basic:

Expected:

Augmented:

Potential:

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Product Characteristics

•Design•Form•Features•Customization•Performance•Conformance•Durability•Reliability•Repairability•Style

Added Services

•Ordering ease•Delivery•Installation•Customer training•Customer consulting•Maintenance and repair•Returns

There are multiple ways to differentiate products.

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Discussion: what are opportunities for product innovation?

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BREAK

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PRICE

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PRICE

“Specifies how the value that has been created can be divided appropriately between the customer and the organization.”

-Robert Dolan,

Pricing Strategy

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2 Sides of Pricing:Effective pricing divides the value between buyer & seller.

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Value-based Cost-oriented Competition

There are 3 fundamental pricing strategies.

26 Competition-based pricing models use competitor benchmarks to set prices.

This pricing strategy centers on competitiveness, but neglects to consider the firm’s own costs for providing goods and services. It also does not accurately reflect how customer’s value a good or service. It leads to commoditization.

Examples include:• Architectural industry• Wireless service

27 Cost-based pricing centers on the firm’s costs to establish pricing.

28 Value-based pricing focuses on the extent to which a customer values a product.

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DYNAMIC PRICINGDynamic pricing sets a price for a product based on how customers value a product in the moment. Examples include the airline industry and Uber.

COLLABORATIVE + CUSTOMER-BASED PRICINGCustomer participate in the pricing process, and in that way, convey the value they hold for the product or service. Examples include Ebay, online advertising auctions.

Digital innovation in pricing captures customer value.

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CURRENT TREND: DYNAMIC PRICING IN THE AIRLINE INDUSTRY

The airline industry has long been recognized as a pioneer in dynamic pricing. However, one article suggests that it has something to learn from Uber, Amazon, and Google.

• Compare dynamic pricing in the airline industry to what we read about Uber’s pricing model. How are they similar? How are they different?

• In practice, what are some of the shortcomings of the airline industry’s pricing models?

• What challenges does the airline industry face, that Uber, et al do not?

• Is the airline industry innovative in pricing? Or, has it fallen behind?

https://skift.com/2017/11/08/what-can-airlines-learn-from-amazon-google-and-uber-about-dynamic-pricing/

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CASE DISCUSSION: UBER PRICING STRATEGIES

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YOUR FIRST UBER.

How did you first learn about Uber?

Why did you download the app?

Why / when did you take your first ride?

Are you a consistent, occasional, infrequent, or never user of Uber?

For those who use Uber regularly, what keeps you coming back?

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APPLY PRICING THEORY TO UBER’S PRICING MODEL.

Value-based Cost-oriented Competition

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WHAT ARE THE ISSUES WITH SURGE PRICING.

Uber experienced issues with its surge pricing model.

1) What were the issues?

2) How were these issues a breakdown of value-based pricing?

3) How does Uber’s pricing model work now?

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ENTER LYFT….

1. What was LYFT’s pricing approach as it entered new cities?

2. What were the benefits and drawbacks to this pricing strategy?

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WHY ISN’T IT MAKING MONEY?

Chart Reference: https://www.statista.com/chart/12059/uber-revenue-bookings-and-net-loss/

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PROJECT BREAKOUT

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Project Activity #7: Design your product. Establish your pricing model.

After working on this for a full semester, you’ve researched your target market, developed a value proposition that resonates with their needs, assessed competition to establish a brand position, evaluated how your technology enhances the customer journey and your prospective clients marketing communications plan, and this week, you’ll work on the product features that your AR solution will offer.

You’ve developed a customer segmentation strategy, a value proposition, and brand positioning. Use those as the foundation to build your AR product, so that it fulfills the value proposition without including unnecessary features.

Build the Product

1. What is the core benefit required to compete in your category?2. What is the basic product?3. What is expected product? 4. Is it necessary to offer an augmented product? 5. What potential does the product have for the future.

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Project Activity #7: Design your product. Establish your pricing model.

Set your pricing model.

1. Which of the three pricing models will you use? 2. Why are you choosing that particular model?3. Are there opportunities to use collaborative pricing or dynamic pricing models?

It’s not likely that you’ll have time to cover all of this in-depth. As you progress on the project, please use this – and other activities – as guides to help you work through the project requirements.

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BASICBasic requirements for participating in the category

EXPECTEDThe basic requirement and the minimum that the customer expects in the category

AUGMENTEDIncludes value-enhancing features that differentiate the product from others

POTENTIALIncludes all possible augmentations & additions that cover “everything that might be done to attract and hold customers”

FIRMS DEVELOP PRODUCTS TO ALIGNVALUE PROPOSITION, BRAND POSTION, & PRICE.

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Product Characteristics

•Design•Form•Features•Customization•Performance•Conformance•Durability•Reliability•Repairability•Style

Added Services

•Ordering ease•Delivery•Installation•Customer training•Customer consulting•Maintenance and repair•Returns

OPPORTUNITIES TO DIFFERENTIATEPRODUCTS.

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Value-based Cost-oriented Competition

FIRMS USE 3 MAIN PRICING STRATEGIES.