Fall+2008+Section+08-PJ+Week+5

=Class Discussion For Week 5=

 =**Pricing and the psychology of consumption**      =

<span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Times New Roman',Times,serif"><span style="font-family: 'Times New Roman',Times,serif">--Long term relationships established by monthly payments rather than lump sum payments. --People pay a lot more attention to transactions when purchasing with cash rather than with plastic.

Consumption/use spikes when payments are made. Use is more constant when payments are closer together.


Here is an example of iTunes using this psychology to work out their pricing structure. http://www.evilgeniusmarketing.com/ice/direct_link.cfm?bid=F3C863E2-F662-039B-DC9D351A11524761

Related Book - Buying In: The Secret Dialogue Between What We Buy and Who We Are
by Rob Walker

Walker explores the changing cultural landscape of Marketing, he calls it "Murketing", blending the words murky and marketing. He talks about how people are embracing brands more than ever before due to a brand's connection with cultural, political, and community activities. The book reinforces the old addage "We are what we buy."

<span style="font-family: 'Comic Sans MS',cursive"> =<span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Times New Roman',Times,serif">**<span style="font-family: 'Comic Sans MS',cursive">Price Framing ** =

=
<span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Times New Roman',Times,serif"><span style="font-family: 'Times New Roman',Times,serif"><span style="font-family: 'Comic Sans MS',cursive">--Sensitizing the market about what benefits are offered and paid for:     ====== <span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Times New Roman',Times,serif"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Comic Sans MS',cursive"><span style="font-family: 'Times New Roman',Times,serif"><span style="font-family: Tahoma,Geneva,sans-serif">Important: identify the primary benefit of your product or service. For example, Apple's primary benefit was functionality (gb) vs. Motorola - they identified background noise reduction as benefit, maybe they should have found a different benefit. Microsoft vs. Apple - the battle continues...Microsoft created the Zune to show that Apple's iPod is just a commodity. Microsoft's Zune is heavier and uglier than the iPod, but this puts them in the market to, one day if they want to, compete in the market.

It is, however, important to take market segments in consideration when mapping the competitive landscape. In his article, D'Aveni treats the cell phone market as one segment and looks for a unified primary benefit that drives the price. However, further segmentation of the market might reveal a market segement for whom the primary benefit is not advanced functionality, but some other benefit. For example, people working and high noise environments might be willing to pay a premium for Motorola's noise canceling technology. In such cases, accurate market segmentation and targeting may prove extremely beneficial. --All inclusive vs. Partitioned: Which is better? It depends... It would seem as if people are getting tired of nickled and dimed - so if pricing is all-inclusive - companies should explain what is included so they get credit for it!

<span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'">

<span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'">More on Framing…
<span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'">In the article //The Hidden Traps in Decision Making//, the author John Hammond talks about different frames of reference that consumers use to make decisions. All consumers have different points of reference when determining how much money they have vs. what they should have, or how much they should spend on any given product or service. Hammond explains the concept of **<span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'">Let's say you have $2,000 in your checking account and you are asked the following question: //Would you accept a fifty-fifty// //chance of either losing $300 or// //winning $500?// Or, the same question can be framed as: //Would you prefer to keep your checking account balance of// //$2,000 or to accept a fifty-fifty chance of having either $1,700 or $2,500 in your account?// <span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'"> Most individuals chose the second option, even though the outcome is exactly the same.
 * <span style="font-size: 10pt; line-height: 115%; font-family: 'Arial','sans-serif'">Framing with Different Reference Points.

__--Numbers game-__ __--Ethical consideration-__The market will demand the price. Coke can implement this strategy, but consumers will only pay what they are willing to pay for the product. This concept should be tested. There are many pros from a business standpoint. Higher price during higher demand periods, lower price during low demand periods. How will consumers react? If it was me, I would by during lower demand periods to capitalize on the price. Others may be caught wanting a Coke during a high demand period. They'll have to make a decision. Will they be pissed off? Initially, yes. Could they learn to live with it? Maybe. The interesting this is: What would the competition (Pepsi) do? If it was up to me, I would keep a close eye on the testing period if I was Pepsi. If successful, I would copy Coke. Perhaps Pepsi should market the fact that they will not raise prices to create a more loyal customer base. __--What other companies/industries engage in this type of business?__ 1. Restaurant/Bars - Happy Hour for example. 2. Oil Industry - different prices at different locations and times. 3. Retailers - annual/half yearly/quarterly/weekly "sales" 4. Cinemas - Matinees
 * Coke Case:**

Because the soft drink industry is oligopolistic, Coke and Pepsi mimic each other - when it's successful - (OR run the other way and highlight the other's lack of customer friendliness when unsuccessful!)....but because it's oligopolistic in nature, if one does it (successfully) the other will follow. It would be an industry game-changer!

__--Price discrimination__ <span style="font-family: 'Times New Roman','serif'">Price discrimination occurs when firms charge different prices to different buyers for the “exact” product. From Coke’s point of view, they are trying to charge each buyer (i.e. in hot and cold weather) the maximum amount that the buyer is willing to pay. Looking at it from an economic stand point, firms use price discrimination to try to eliminate the welfare loss and capture more of the consumer surplus. Coke’s vending machine is not the first to utilize this approach. Pr//<span style="color: rgb(51, 51, 51); font-style: normal">ice discrimination occurs in nearly every market. <span style="color: rgb(51, 51, 51)"> //Examples of price discrimination include the kid’s menu at restaurants and movie theatres with discounts for students and seniors. Solving the Virgin Mobile Phone case
 * Virgin Mobile case:**

Our group talked about how Virgin's "no contract" mobile phone option would work especially well for the "rebel kids". These kids would be the ones who were not included on any sort of family plan for their mobile phone, or, they may be on their family's plan, but want to have an additional phone for the calls they do not wish for their parents to know about. These kids would be targeted around the age of 14 (with youth focused marketing on channels such as MTV), and would either continue to stay on their "no contract" plan into early adulthood, or they would come upon the information and/or education they needed in order to convert to a more cost effective contract plan, either with Virgin or not. Overall, the "no contract" option would tend to be most successful in the families of lower socio economic status. Have the option of a contract so you don't limit your customer base. Target family plans for kids going to college.

I

--Advanced Functionality --Pricing/phone plan scheme

In combination of a savvy marketing campaign, Virgin Mobile strategically targeted those users who are untraditional and undesirable for the competition. Virgin Mobile chose a calmer, "red ocean" over the more competitively turbulent "blue ocean" by offering low start up costs, no contracts and inexpensive handsets. Their pricing strategy falls into "perceived-value pricing."

PRICE MINUTE PACK PER MINUTE VALUE $20 200 = 10¢ / MINUTE COMPARE TO TRACFONE $30 400 = 7.5¢ / MINUTE COMPARE TO AT&T GOPHONE $50 1000 = 5¢ / MINUTE COMPARE TO NET10 As long as you buy another Minute Pack within 30 days, any unused minutes will roll forward for the next 30 days (up to 5000 minutes). If you don't purchase another Minute Pack within 30 days, your unused minutes will expire at the end of the 30 days. OR GO BY THE MINUTE 20¢ / MINUTE BASIC RATE 10¢ / MINUTE ALL THE TIME FOR $6.99/MONTH ADD TEXT & MESSAGING

(PIX, VIDEO, EMAIL, & IM) $5 / MONTH = 200 $10 / MO = 1000 Basic Rates: 10¢ per Text, Email, or IM/ 25¢ per Pix or Video
 * www.virginmobile.com

__Theories and Concepts:__** Gift Economy**-** A social theory in which goods and services are given without any explicit agreement for immediate or future quid pro quo. [|**http://en.wikipedia.org/wiki/Gift_economy**]

Blue ocean strategy - http://www.blueoceanstrategy.com/ A theory describing the vast untapped market of the unknown. Don't compete in the red ocean, where margins are low, competition is fierce, and stress levels are high. Instead, find the blue ocean (i.e. Fed Ex's overnight service -- first to make it effective)

Tragedy of the Commons**-Title of an article written by Garrett Hardin. This article describes a dilemma in which multiple act independently in their own self-interest can ultimately destroy a shared resource. Not everyone feels the same level of responsibility. http://en.wikipedia.org/wiki/Tragedy_of_the_commons