Fall+2008+Section+07-PS+Week+5

=Class Discussion For Week 5= =Mapping Your Competitive Position=



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= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =Pricing and the Psychology of Consumption= · Businesses may in fact be negatively impacting sales when they “hide” costs associated with products · People are more likely to consume & enjoy a product when they are clearly aware of it’s price - Think of rich kids with nice cars…..they never take care of them because they are unaware of the costs. · People are more likely to re-purchase a product if they have consumed that product after their last purchase - This makes sense, if you didn’t use it the first time, why pay for it a second time…
 * __ Key Points: __**

Is consumption as important as the sell?
This question depends on whether the company is looking for a single purchase or a repetitive customer. As we have learned from Customer Lifetime Value, it is more profitable to have a customer that makes repeat purchases. This means that consumption, according to Gourvill & Soman, is more important to encourage repeat business. If customer purchases a good, but does not use it, or infrequently use the product, they chances of them repeating a purchase are less than if the product of consumed. While the selling of products is essential to gain new customers, the most profitable are good customers that make repeated purchases.

=Free! Why $0.00 Is the Future of Business= http://www.youtube.com/watch?v=RZkeCIW75CU

Are we really moving to a free market?
Free? Nothings free in life (you can buy air in some bars now days). It is true that many products/services are being offered without direct dollar cost to cosumer. However, when consumers use such products (like G-Mail for example), they are in a sense "trading" these services for highly desirable personal information (which can be used by companies like Google for personalized targeted ad campaigns).

Although nothing is truly free, it's exciting to think that this is an arena for companies and marketing departments to explore. How else can free be used to attract customers? How else can free be used to glean more data? With consumers driving many markets and products these days, what will consumers push to be free next? Maybe I could get a free car if I agreed to advertise for Pepsi every day. Maybe I could get a free cell phone if an advertisment is sent with each text I send? Skies the limit!  For IT professionals the idea of ‘free’ software presents many challenges. Sharing corporate data with another company (e.g. Google) may be cause some concern. However, the savings potential is definitely real. What if Microsoft offered the Office software suite for free? They could monitor how the software is used, refine the interface based on the collected data, while not reselling the corporate data entered by users. Companies would save the money previously spent on Office, and Microsoft could target software enhancements to features based on use (has anyone ever used all of the buttons in Word?).

This concept works well in information- or service-driven industries but does not translate well into product-based business models. The author claims that everything looses value over time and eventually is worth mere pennies. However, he does not take the product lifecycles into account. Value is lost when the next, new thing has arrived on the market, which drives down the price of the old, out-of-date alternative.

=Coca-Cola's New Vending Machine (A): Pricing To Capture Value, or Not?=



Regardless of Coca-Cola's intention, they completely failed to send a strong & well reasononed message with the "Environmentally responsive vending machines". CEO Ivester's comments gave the intent that the company was heading in one direction, this message was reversed completely (indeed in an embarassement to both the company and CEO) by the company spokesman. The failure here was this, the spokesman stated that Coke had no intention of ever using this type of vending machine (HBS Case 9-500-068 pg1). **Then, why was Coke spending resources testing technology?** This statement restricted Coke from introducting such technology (or else being labeled if they did). Pepsi could use this advantagiously by introducing a similar product that sided with consumers (i.e. "unlike Coke, we reduce our price after the sun goes down").

Despite Coke's poor PR in their new vending machine technology, it would still be possible for some vending machines to have price discrimination based on their location. For example, if a movie theater sells cokes for $4, a strategically placed machine near the theater could up sell at $3 and still be considered a 'deal' based on their location and the price of available substitutes. In situations like this, it would creat profits for Coke and (some) savings for consumers.

When asked if we believed there is an ethical dilemma in this Coke case, we did not see a conflict. This link gives information regarding Coke's standard of ethics. Do they meet these goals?

http://www.thecoca-colacompany.com/citizenship/governance_ethics.html

=Virgin Mobile USA: Pricing for the Very First Time= [|Virgin Mobile's Strategy]
 * VM Today:** See the linke below for a discussion on how VM is doing in 2008 and what their current strategy is

What is your Plan? Why?
Team#1

Team#2


 * Team #3-The Marketing Marvels** proposed a strategy for Virgin Mobile (VM) which put emphasis on pursuing the >25 age group. They suggested tactics focusing on pre-paid plans, providing bonus minutes for every 1000 minutes purchased, free monthly face plates (skins), free or substantially discounted "upgrade phones" to customers on their account's annual anniversary, and incorporating some level of social networking software into the phone.

Team #4 - **Team Maverick ;)** thought that Virgin Mobile found a great focus in marketing to 14-18 year olds, and others who might find use for a pre-paid, somewhat disposable phone. Further growth could come from giving bonus minutes in exchange for customers setting up an auto-deduct plan with a checking account or credit card. This system could be marketed towards those who don't want to worry about meeting payment deadlines in order to not run out of minutes. Expanding phone plates to be seasonal or in line with cultural shifts will help encourage customers to stay up to date with the latest 'design' for their phone. Likewise, producing new phones that resemble other models (such as the iphone) may encourage more sales.

[|Exclusive: Interview with Virgin Mobile USA CEO] July 9, 2006 - 11:39am ET "...For us, that was the youth market that had about a 25 percent penetration when we launched. We basically came in and tried to redefine the value proposition with pay-as-you-go... Kids have been marketed to since they were 1-year-olds. They are savvy about it. We wanted to have like-minded brands that appeal to them… Our market research tested off the charts for us in terms of how kids reacted to it."

[|Virgin Mobile Minute Plans]

Our plan was the focus on the 14-25 age range with an emphasis on the minute plans available. This was an untapped market at the time of the case. We felt this market was a large segment in a semi-saturated industry. Virgin played off the teen/young adult market by teaming with MTV and BET, stations marketing to a younger demographic. Continuing to market through tv, magazines, internet would target the correct audience. Our plan to sustain the Virgin customers is to offer incentives with discounts on minutes when a certain number has been purchased, upgraded phone options, offer "green" phones, discounted face plates/ringtones, etc.