Life Cycle, Value &
Segmentation
Product Introduction
•
•
•
•
•
Price too high – no growth
Price too low – limited profit
Who are initial adopters
Education the key
Price-quality effect
How to get adoption
• Sampling (cheap and frequent purchases)
• Education
• Incentives for distribution channel
Growth
• Penetration
– Cost advantage
– Winner take all market
– Price sensitive customer base
• Skimming
– Quality
– Niche
– Barriers needed
• Neutral
Issues during growth
Market Characteristics
• Does market want specialization or low
cost?
• Price sensitivity
• Long term development of market
– Timing
– Size
Issues during growth
Strategy Issues
• Segmentation?
– Can you?
– Do customers value?
– Willingness to pay for quality
• The structure of costs.
– Economies of scale
– Cost advantage
– Fixed vs Variable Cost
• Firm’s financial position
Maturity
• Competitive advantage
– Needed for survival
– Cost
– Differentiation
• Imitation
– Proven Market
– Clone the Best
– Saturation Issues
Maturity techniques
• Unbundling - selective competition where
competition is the most intense.
• Better metrics (what works and what doesn’t?)
• Cost control to increase margins
• Selectively dropping unprofitable products
• Product line extension - leverage successful
products.
• Streamline distribution (for cost effectiveness)
Value Based Pricing:
Techniques
• Quid-pro-quo – price tied to value
• Sell quality
• Selective participation (some business is too
costly)
• Set pattern of fixed prices (cuts transactions
cost)
• Compensate sales force for profit not vol.
• “Temporary” price concessions (intro…)
• Use non-price closers (especially for sales force)
CAREFUL!
• Be explicit about service support & costs
• Use marginal analysis when evaluating
offers
• Long run impact vs short term pricing
• Make contracts two way (I give, you give)
• Beware of locking in price when value is
changing.
Steps
•
•
•
•
Determine value (customer specific)
Choose markets that are cost effective
Evaluate the deal carefully
Must be cost effective
– For firm
– For customer
• WINNER’S CURSE
Segmentation
• 1. Separable markets
• 2. Different price elasticities
• Lower price (for volume) in elastic market
• Raise price (for margin) in inelastic
• Equalize Marginal revenue across markets
• Need review of price discrimination??
Separation
• Information (AAA, AARP, coupons,
financial condition for college students)
• Location (region, roaming charges, freight
charges)
• Time of purchase (long distance rates,
periodic sales, now vs later)
• Peak Load Pricing (interruptible power,
long distance rates)
• Yield management (airlines)
Using Volume
• Volume (size of order vs monthly volume)
• Order discounts (cost based discount)
• Step discounts (reap part of consumer
surplus)
• Two part pricing (utilities’ connect fee)
Techniques
• Product Design (make different markets’
products incompatible)
• Bundling (diff. cust. - diff attribute values => add
to benefit--McDonalds)
• Optional bundling – force customer into marginal
cost analysis (cruise packages)
• Value added bundling (add-ons—housing, cars)
• Tie-ins (two related markets with different
elasticities—printers and cartridges)
• Metering (a way of measuring value provided)