Week+5

Week #5
People value avoiding loss higher than seeking gain. - This is a true statement, but statistically, this is a poor decision criteria. Using expected value techniques with probabilities of loss and gain, a rational decision can be made. That people don't always act rationally or are unaware of the rationality of a decision should be a decision in product development, pricing, and marketing.

Pricing and the Psychology of Consumption: If organizations want to build relationships with their customers, they must make sure that customers use their products.
 * "A $10 cash transaction feels different than a $100 cash transaction."
 * Customers who use/consume products are more likely to buy that product in the future.
 * People tend to use products if they are aware of the cost so they can "get their money's worth."
 * Consumption is not only driven by actual cost, but by perceived costs as well.

After reading this article and considering applicable scenarios, you realize that many products thrive on the card, not cash transactions. My own experience usually relates to retail and entertainment. If I'm golfing and buy some Nike golf balls on sale in the proshop for $20 a case, I will typically "throw it on the card." The fact is Nike balls on sale are terrible and if I had to pay $20 in cash I would not have done it. Companies can masque their crap with transactions that don't create emotion.

Price Framing: How you tell a customer impacts how they think about it. There are plenty of examples to name when it comes to price framing, but one I recently encountered was UHaul. I had to do an inter city move (<15 miles), and the advertisement on the truck says $19.95 (+plus miles in smaller print). Luckily I budgeted around $60 for the move, because the 15 mile move cost over $60, after the $19.95, tax, and miles.

Here is a site dedicated to bashing uhaul. Enjoy... http://www.uhaulstory.org/

Sensitize the market about what benefits are offered and paid for: Price Skimming: start with a high price to capture early buyers and then work the price down to get more and more buyers
 * All inclusive
 * Partitioned

"Freeconomics" - Every industry that becomes digital eventually becomes free.
 * Cross subsidize products - make one thing free in order to sell others.

Regression Analysis and The Positioning Map - Map the top strength of your product in addition to your competitor’s top strength. Per our conversation regarding the cell phone market, it looks like Nokia has other tricks up their sleeve in addition to creating a better smartphone: [|In Lawsuit, Nokia Says iPhone Infringes Its Patents]

Regression: P=B0+B1F1+B2F2+B3F3+E

We talked about how companies often give away products in order to generate revenue in their more profitable segments. Last week, we discussed that in 2007, Prince gave away free CD’s to concert-goers. He lost $18.8 M in CD sales; however, he made most of the lost revenue back in concert tickets. Earlier this year, Coldplay offered their LeftRightLeftRightLeft CD for free to their customers. The group realized that they make most of their money from touring rather than selling CD’s. In effect, Coldplay used the free CD promotion to generate buzz about their Viva La Vida concert.

It is astonishing how a company like Apple, with such little market share in the cell phone industry, practically dominates the market. Their ability to move products from an "ultra-premium status" at will, is nothing short of brilliant. A drop in price of the I Phone would cause this fall in status for all other cell phones in the market. It is unreal. However, what will be the next wave of dominant companies in that particular market that can compete with Apple?? It's hard to fathom, but time will tell.