Week 8: Pricing

Week so far:

This has been a very hectic week where we were finalizing our submission for our sections of the marketing plan. I saw excellent team work and co-ordination within my team and some of the harsh realities of marketing decisions became very apparent. Making decisions in this fast paced technology world, where the consumers have more choice than they can even comprehend, makes the job of decision making not only painful, but extremely crucial in ensuring success in the market place.

The topics for this week are primarily around Pricing. I read Chapters 7,8 and 9 from the handbook and also Principles of Pricing from the course pack. I also watched Prof. Talbott’s video on Pricing, where he talks about different pricing options like Value Pricing, Product Line Pricing, Captive Product Pricing, Optional Product Pricing, Product Bundle Pricing etc.

Pricing:

Competition in the wireless industry is fierce and price wars are very common. In 2008, Sprint, the wireless service provider was in turmoil after merging with Nextel and Dan Hesse had come on as the CEO of Sprint-Nextel. Sprint was continuing to lose customers and ‘churn’ was one of the biggest issues for Sprint in the market place. There were countless issues with customer service and billing was a common concern, where the customer received a higher bill than was anticipated, which was attributed to higher data or voice usage than what their chosen plan allowed for.

  Dan Hesse wanted to promote a clear brand identity for Sprint and win back the customers and improve the perception on Sprint’s customer service. He introduced the ‘Simply Everything Plan’ which revolutionized the wireless industry and laid the foundation for Sprint’s comeback, by introducing a flat pricing for unlimited usage. This was a pricing plan that did away with all the confusions around the pricing plans – as the numerous pricing plans that were being offered by Sprint confused the customers  and they became apprehensive as to what was hidden under the covers or in the small prints.

The Simply Everything Plan, the first plan to offer unlimited data for a fixed price in the wireless industry, at a time when data usage was growing tremendously with the smart phones beginning to crowd the market and voice was being reduced to a commodity, was indeed a pricing revolution that gave Sprint a unique identity and branding. The comparisons of the pricing plans were made with the top players in the wireless space - AT&T and Verizon - to show the pricing advantage that Sprint was offering.

http://newsroom.sprint.com/article_display.cfm?article_id=1818

http://www.sprint.com/landings/compare/index.html?ECID=SEM:google:P:Sprint_com_2012_Q2:Brand_Name_-_Phrase:sprint:p:Branded_v2_-_Brand_Name

 Dan Hesse also appeared on Sprint’s ad campaigns spreading the word on the Simply Everything plan. The ads were run on the national TV channels and also promoted during premium time slots during NFL, NASCAR etc in addition to the Sprint.com sites, news papers and magazines.

In one of the ads Hesse says: “The other day, I looked up the word unlimited in the dictionary. Nowhere in the definition did I see words like metering, overage, or throttling, which is code for slowing you down. Only Sprint gives you true unlimited calling, texting, surfing, TV and navigation on all phones.”

He concludes with the question: “Why limit yourself?”

A link to another one of the Ads: http://www.phonenews.com/video/simply-everything-dan-hesse-720p.mp4

Cleopatra - What went wrong???

Major concerns I see in the Cleopatra case are:

  1)      The success in France was the major factor driving the introduction of Cleopatra in other markets like Canada  - not real market studies and customer feedback

a.       The Global Market Group assumed that since it had worked so well in France, it would work well in other parts of the world as well.

b.      There was no consensus among the management team on the decision to introduce Cleopatra in Canada – some of the managers had to be coerced, which definitely impacts the maximum efficiency and support that can be achieved

  2)      The mission of the Canadian Cleopatra program was to leverage the customers in French speaking Quebec, due to the success in France, but the two pilot customer researches were conducted in Toronto, that too of a very limited audience.

a.       The target audience was very small – a highly targeted group, ‘super group’ of articulate professional women and a second group of more typical consumers

b.      The duration allocated in the survey to seek customer feedback was very small – the reaction from the customers was sought almost immediately (a week later or immediately after they were given the details of the advertising and price). This raises a question as to whether there was ample time for the users to actually get used to the product before giving their candid feedback based on their experience using the same.

c.       The research only asked the question as to whether they would buy Cleopatra – it did not seek details as to:

                                                              i.      Whether they will use Cleopatra regularly (all the time) and stop using the other brands that they currently used (Was asked in the Post Survey - Exhibit 12) or only use it occasionally          

                                                            ii.      Whether it will be used by other members of the household and even men (Was asked in the Post Survey - Exhibit 12)

                                                          iii.      Whether they will use it only for their face or for the entire body (Was asked in the Post Survey - Exhibit 12)

                                                          iv.      What attributes of Cleopatra they loved and what aspects they would like changed. They would have benefited from knowing prior to launch, some of the concerns and information that came out in the post survey (Exhibit 11, 13, 14), in that they could have adapted Cleopatra to cater more to the Canadian market

d.      Sufficient research to understand the consumer demographics of the French Canadians which was the targeted market segment was not done

                                                              i.      The post survey (Exhibit 11) clearly indicated that for many French Canadians, the level of perfume is perceived to vary directly with the cleaning strength and harshness of the product. This was in sharp contrast to the French where it was said “to produce an unforgettable fragrance.”

  3)      The Canadian soap market was:

a.       Extremely competitive and the retailers were all-powerful as the competition was extremely intense for the limited shelf space. Inside the store, a brand’s fate was completely at the discretion of the retailer who decided which brands to promote and who to do business with. – In spite of this, Cleopatra’s strategy was to bypass the retailers and reach the consumers directly via advertising and promotions. This ‘pull’ strategy could have also potentially impacted availability of the soap to the consumers as can be seen from Exhibit 14, where 29% of the consumers could not try Cleopatra because it was not available where they shopped.

b.      Consumer’s buying decisions were based on price – in Contrast Cleopatra’s strategy was to price it at the highest as an extremely premium brand. Per Exhibit 14, 19% found Cleopatra too expensive

c.       Ivory, which was the brand that was competing in multiple segments was the most successful market leader and had the highest market share - in contrast Cleopatra’s strategy was to compete in a very narrow segment

d.      Irish Spring, with its strong scent and high lathering capability that was associated with cleaning strength by consumers was made especially for men and did well in the male market as a refreshment soap – in contrast, Cleopatra with its strong fragrance and lathering was being targeted almost completely at a female market, many of them were not looking for ‘harsh’ soaps

e.       Dove, the Cadillac in the skin care segment was low on additives and scent – in contrast Cleopatra, though it perceived Dove to be its prime and direct competition, had a very strong fragrance.

  To try and turn the ship around, I would suggest that Colgate Palmolive and Steve Boyd resorts to Option 3, where they try to alter their strategy and make some changes to the product as well. It can be seen that Ivory that competes in multiple segments has the highest market share. As far as changes to the product, I would propose reducing the fragrance to suit the Canadian standards and continuing to promote the sensual, creamy and mildly perfumed soap in the skin care segment. They have to definitely change the pull strategy as it is clearly not working and the retailers who have the soap are even starting to remove Cleopatra from their shelves. The retailers who had arrived for the Canadian launch extravaganza of Cleopatra were tired of the discounted brands and were clearly looking for something new, different and exciting. Those enthusiastic retailers had signed up for 2000 cases just that evening, but Steve Boyd and his team failed to follow through on this relationship and strategized to go around these retailers. Definitely there was awareness and folks who used it once were eager to buy it again (4.4% used it most of the time or all the time). So by patching up their relationship with the retailers and ensuring availability, Cleopatra should definitely be able to regain ground. I would also stop targeting the soap completely towards women and leverage the refreshing smell and  lathering to target it towards the male audience as well, leaning slightly more towards the refreshment segment. It could be portrayed as the male population luring Cleopatra, the queen of beauty, towards them with the lasting fragrance of the Cleopatra soap. J

  As exhibit 10 clearly indicates, once people used Cleopatra (the 99 Cleo triers), they mapped Cleopatra higher in every category compared to the other soaps including dove, so Steve’s strategy should not be limited to raise awareness, but should be to get the people to try Cleopatra and ensure its widespread availability.

Anticipating Customer Needs

  Last week saw a lot of group discussion and team work as part of the Fashion Channel Case. I got a bit of the taste of the kind of dilemmas that can be faced by a marketing manager and the potential resources at his/her disposal in solving them. It was interesting to hear the different perspectives that each of us brought to the table and the team work was awesome. There is a world of information around us, the key is how we use this information in an effective and practical way in building our strategy and plan.

 This week, it is more of reading and watching the videos. 

I read :

·                     Chapter 6 of Text 

·                     The Cleopatra Case

·                     Apple and Innovation: From Ruins to Riches

I watched:

·                     Rory Sutherland Video

·                     David Bell (Chyrsler) Video

·                     Prof Talbott’s Videos on Products and New Product Development (Part 1 and Part 2)

I was pretty inspired by David Bell’s words -

“Listen to the customer, then anticipate and go one step farther, surprise them by leading them – It is all about surprising them – taking them to a place where they didn’t know that they wanted to go, but may have given some signals that it may be cool”. “Customers are good at telling u everything they don’t like, but they don’t articulate well what they want. Listen to what they don’t like and surprise them by leading them.”

  This is definitely easier said than done. In today’s competitive market, it is very hard to identify that one key element that can distinguish you from the pack. Also, even if you find that niche, your dominant position is short-lived as the other players soon catch up and the competition heats up all over again. We can see this as one of the factors in the TFC case as well. The success of the TFC channel inspired CNN and Lifetime, already successful players in the entertainment business to expand their horizon into the Fashion world as well. So if you are successful, it is just a matter of time for competition to catch up and this in turn should keep you motivated to continue innovating so that you can continue to surprise your customer.

  Looking around us, we can see how quickly products or technology get outdated. I would like to take the example of an audio system. From radio, we evolved to cassette players, CD players, MP3 players, iPODs and so on. Progressively, the cassette players are becoming obsolete. My car does not come equipped with a cassette player, it only has a CD player. I don’t think any of the stores are selling audio cassettes for the new movie songs, they have all moved to CDs.   Similarly, the rotary dial telephones are almost obsolete. They have been replaced by the touch key pads that use DTMF signaling as opposed to the rotary pulse dialing.

Week 6: STDP - A few thoughts....

As we get deeper into the concepts of segmentation, differentiation and positioning, it just becomes more and more evident as to how complex a subject this can be. In today’s extremely fast moving world, there is a lot that can be lost if we focus very narrowly on small core segments, as the user preferences can change very quickly and might spell doom for the entire business. At the same time, if you can be in the same frequency as the customers and adapt your offerings to match the changing user preferences, you will end up creating a very loyal customer following.

  Apple seems to be extremely successful in this endeavor. Their innovation and attention to quality has made them one of the most successful brands with a very loyal segment. But something in the article. “The Greatest Comeback Story Of All Time: How Apple Went From Near Bankruptcy To Billions In 13 Years” (http://www.businessinsider.com/apple-comeback-story-2010-10#2010-the-year-of-the-ipad-14) caught my attention. It said: “Innovation doesn't require focus groups. Steve Jobs doesn't believe in asking customers their opinions. You can develop products people will want before they even know they want it. Sometimes, you can know customers better than they know themselves.”  The first lesson that I learned in Marketing is all about knowing your customer. The immediate thoughts that come to our mind is to conduct survey and have constant dialogues with the customers so that we know what they want. But in reading this, in contrast, it makes me think that, it is not sufficient to know what your customers want, you should be capable of anticipating their needs, even before the customers know that they have such a need. This is indeed powerful and goes a long way to explain Apple’s market leadership position.

    One of the most important aspects in marketing is the customer perception. As Rory Sutherland explains in his talk as well as shared in a previous video, we could serve the same wine at different prices and the consumers would enjoy the costlier wine more, just because it was priced higher.   Recently, Apple had issues with the maps that they launched with the Iphone5. This proves that even the giants can falter and make mistakes. But what is more important is to acknowledge the mistake, take responsibility, communicate immediately to the consumers, apologize and ultimately learn from these mistakes.  Attached is a link to the letter from Tim Cook, Apple’s CEO, apologizing for Apple’s mistake. http://www.apple.com/letter-from-tim-cook-on-maps/.  Also including an excerpt from a Bloomberg article on how Apple may benefit from this mistake- “Cook was still apologizing a few weeks ago when he told Bloomberg. "We set out to give the customer something to provide a better experience. And the truth is it didn’t live up to our expectations. We screwed up."

There's a concept in psychology called the "pratfall effect." Put simply, we like competent people more than incompetent people, but the people we like best are competent people who occasionally falter. The classic pratfall experiment shows how individuals find a competent person who spills coffee on himself more attractive than a competent person without slippery fingers. So Apple Maps may enable Apple Inc. to benefit from the pratfall effect. “

 The full article can be found at http://www.bloomberg.com/news/2012-12-13/how-apple-will-benefit-from-its-miserable-maps-failure.html

  In short, Apple is perceived as a high quality brand, one that strives hard for quality and customer satisfaction. Based on that, the customer will be okay to overlook a few issues or errors, but other players in the space who are not perceived the same by the consumer may not be that lucky!