Should we push or pull?

This week I wanted to compare how companies incorporate either a push or pull strategy in order to generate more sales. I was curious to see how different companies approached their customers and their strategy. In my company, we do not necessarily incorporate either strategy but if I had to choose one, I would say that accounting firms generally have a pull strategy. In bringing in new and current customers, accounting firms will work on creating good customer relationships. The profession is highly dependent on word of mouth referrals that will pull customers in. Many new clients that we receive often times come to us seeking help or assistance. These companies know the type of work in which we perform and come to us. I did notice however that little advertising is used to pull customers in. Unlike most companies which may incorporate a pull strategy, I have seen that little advertising is done to pull the customer in. Instead we rely on strong word of mouth advertising to bring in those new customers. That word of mouth advertising comes from our relationship selling in which we successfully manage the customer.

Next I looked at automakers in how they implement either a pull or push strategy. I believe that in the automobile industry, implementing the strategy is dependent on the type of vehicle. For example, standard and basic cars such as the Honda Accord or Toyota Camry use a pull strategy by advertising to customers as much as possible. These automakers compete heavily and try their best to draw customers to them. Similar to my company, these automakers also look to create those valued relationships with customers. Other tactics used include offering varying promotions and rebates which will further help to draw customers to them. In looking at higher end automobiles such as Lamborghini or luxury Mercedes Benz and BMW, more of a push strategy is used. For example, these vehicles are highly specialized to a specific market (high cost luxury vehicles) and companies strive to be close to their customers. This includes having special trade show promotion that encourages more demand. This push strategy works to establish a more specific customer as the product is very defined and is not intended for the entire population. These companies must push the product to the customer because it might be the only way to get them aware of it.

This week in PharmaSim World

In examining the elasticity of Allround cold medicine, prices changes from 1%-15% did not affect the sales. It is determined that the product is inelastic as the price changes had no major impact. I think a big part of this has to do with the brand loyalty of Allround. Customers are willing to pay more for the product as they remain loyal with price increases. The brand also has very high customer satisfaction and brand perception. The increase in price is equal to the already added value the product has. Therefore we are able to increase the price as much as 15% without there being setbacks in net income. At a 20% increase in price, I believe that is where customers realize that the price is too high and are therefore no longer willing to pay that premium for the brand.

Implementing the 4 Strategies:

Everyday Low Price: Implementing this approach would include dropping the price dramatically in order to become the lowest priced cough medicine in the market. However, as seen in the elasticity work this week, decreasing the price is a strategy that will not increase sales. The brand has strong customer awareness, therefore a low price strategy will be unsuccessful. Allround can produce a new line priced very low  in the market but this strategy may be at odds with the customer’s perception of the brand. It might have to create a 2^nd brand to implement an EDLP strategy.

High/Low – I think this strategy would be successful if implemented as customers would get perceived added value. The brand is already highly regarded based on customer surveys. Therefore having set a high price, and then giving rebates and discounts will have customers believing that there is a huge deal when they buy Allround.

Skim – A price skimming strategy would involve introducing a new Allround product at a high price and decreasing the price over time.  Similar to the EDLP strategy, I also feel that having a reduced price with the strong brnad name of Allround would confuse customers. It would make for an unclear strategy for Allround.

Penetration – Penetrating the market with a low price and increasing over time may work if Allround introducing a price just slightly lower and then increases it. The low price initially would make customers try the new product and the company will be able to increase the price over time as soon as a strong customer base is established.

Correct price means correct value

Determining the “correct price” for any given product can lead to many mistakes for the company and its customers. I know in my profession, public accounting, determining the proper price to charge a customer can become a major issue. There are really no rebates or promotions as it is service based and price is determined by the magnitude of the client. There can be small promotional discounts or fee reductions, however that is rarely the case, and when discounts due occur it is often small. Discounts may also occur if there have been errors or setbacks on our company’s behalf. In those cases, we reduce the price charged to the customer because of the reduced value we have given. In looking at the “correct price” in my profession, it can be the price that matches the value we give to the customer. I think Drucker would agree that the price charged must be equal to the assumed value given to the customer. Customers will pay the price in which they believe they are getting value for the product or service. In my company’s case, customers will be unwilling to pay a high fee if they believ they are not getting added value in return. In that case, they would likely change accounting firms, and go to a firm that can match their price with their value.

Samsung vs. Apple

Something interesting that I have seen in recent months has been the marketing strategy used by Samsung in promoting the new S4 smartphone. Like everyone else, I have seen commercials promoting the S4 as” the next big thing is here”. As a direct competitor to the Apple iPhone, Samsung’s strategy has been to bluntly show customers that it is better than the iPhone. Its commercials clearly mock Apple users and the idea of waiting for the next version to come out. As an iPhone user, I have to say that I was turned off to Samsung’s strategy as it clearly criticizes Apple’s iPhone.  I feel that many Apple users will likely stay away from Samsung unless they are very dissatisfied with their phone. The strategy taken by Samsung made me think of other situations where a company took its competitors “head-on”. The first example that comes to mind is Pepsi’s commercial of the Pepsi-Coke challenge where it directly stated that it is better than Coca Cola. Marketing techniques like these are interesting as the company states that it is better where in most cases the market or the customer will determine the better product.

This week in PharmaSim World

The three products that are line extensions for me include a 4hr child cold liquid, 4hr allergy capsule, and a cold spray. Trying to find the market demand for the three possible product lines, I used the brands purchased report and allocated the percentages based on the type of care needed and the population. For the child 4 hour cold liquid, out of the 561 total units, 74.7% was cold, of which 26.5% was young family. I found that based on the data, approximately 111 units are purchased for young family with colds. The average cost of cold medicine was about $5.25 making the total market. Moving to the allergy line extension, the total market is 561 units x 11.5% which equals a total market demand of just 30 units. The last line extension of the cold spray has a market demand of the total cold market of 74.7% x 561 units = 419 units.

Luxury Branding Sin

Drucker’s sin of premium pricing and high profit margin shows how companies can become too narrow focused on increasing profits. In the example of Xerox, the company believed that it could continue to grow sales by adding “bells and whistles”. The added features were thought to have added value to the product, however the customer did not have perceived value for these added features. This was also the case in Drucker’s example of the car industry where auto makers did not focus on what customers wanted. Customers saw no value in the features provided and were unwilling to pay that premium price. Apple is course a premium pricing brand which Drucker might consider as breaking one of the sins. However, I feel that unlike the automakers of the 1970’s and Xerox, apple is able to provide added value to the customer. It is easy to see that customers are willing to pay a premium price for the brand. Customers value Apple’s product innovation and most importantly their brand equity. They are willing to pay the premium to “fit in” with others who have Apple products. That premium pricing strategy will be successful as the Apple brand has been built into the culture.

Target Luxury

The relationship between Target and Nieman Marcus brought about a lot of questions when the collaboration was first announced in 2012. The mix between low cost and premium luxury branding gives many customers question marks. However, as seen in the class article, there are several circumstances where, if done properly, downward luxury brand extensions work. In the Target and Nieman Marcus venture, both parties saw benefits. For Target, it allowed them to give customers a sense of luxury. Customers who shop at Target look for low prices and value for their money. Offering them luxury brands would be allow them to get a little bit of that luxury. This is similar to the luxury car makers who brand entry level sedans. Luxury car makers like BMW and Mercedes Benz have entry level vehicles for those seeking a level of luxury. These vehicles are priced at the bottom, but still have the luxury brand and prestige. While Target gives customers a new sense of luxury, Nieman Marcus gains new customers in this relationship. Similar to Rolls Royce introducing the Ghost model, Nieman Marcus will target new customers when working with Target. Although this may prove to devalue the brand as it happened to the Mercedes Benz A class model. Nieman Marcus must not lose their premium pricing value.

This article discusses the venture as a big flop:

http://business.time.com/2013/01/02/epic-retail-fail-where-did-the-target-neiman-marcus-collection-go-wrong/

This week in PharmaSim

In the first trial, based on the conjoint analysis, I set the price to 3.59 which decreased my stock price. Brand awareness increased and overall manufacturer sales decreased. Although my sales and units sold increased dramatically, my net income decreased based on the drop in price.

Replaying the period, I set my next price at $4.79. In this second try, I saw brand awareness stay relatively steady around 83% while unit sales jumped to 130 million. I saw my share of manufacturer sales decrease also but not nearly as much (from 25% to 23%).

 Next I performed a test looking at two separate bundles. Bundle 3 (price of $4.31 and drop alcohol) decreased net income from $85 million to $52 million and slightly decreased the stock price. As expected with the drop in price, the number of units sold increased from 115 million to 140 million. I knew that sales would increase but I was hoping that my net income figure would not decrease as much as it did. Looking at the industry market, my manufacturer sales was similar to the 2^nd trial above. Bundle 3 decreased my manufacturer sales from 24% to 23%. I also saw the purchases survey indicate an increase from 18% to 24% for percentage of units sold.

Bundle 11 (price $5.27 and switch to expectorant) had mixed results. I saw both my stock price and net income decrease. Income going from $85 million to $77 million. The drop in net income was much better than the bundle 3 trial. I saw the number of units sold slightly increase which was surprising to me. Especially with my changes in pricing. This bundle also had an increase in the purchasing intentions of the customer.

Looking at my personal preferences when buying over the counter cold medicine, I typically try to get a good balance with both price and quality. I think that can be said for most customers who are buying OTC products. I do not have a preference to buy a specific brand and price will typically be the deciding factor.

Product that depends on customer's use situation

When examining a brand which varies depending on the customer’s situation, I first thought of the clothing industry and how varying brands will change depending on the weather. The customer will often times wear clothing depending on the weather or season. This is very dependent on the customer’s use of the product. The customer’s use situation will dictate the market in some ways especially in extreme seasons where certain clothing is needed. For example, an umbrella is only needed in the rain. This product is highly dependent on the customer’s use situation. Certain customers who do not need to walk far from their car to work, might even choose to not have an umbrella. Other clothing such as sweaters, shorts, or jackets are also very seasonal. The products will only used depending on the situation the customer is in.

Construction and Football - Looking and other blogs

This week I looked at Kenny’s blog and examined some of his points related to class. I found his analysis of the construction industry very interesting especially his experiences as it relates to marketing. Being a very unique industry, Kenny indicates that the majority of their business is repeat customers. I found this very interesting as the majority of the customer interaction is after the sale. When looking at most sales/marketing in different industries, companies will work with the customer before the sale. Typically once the sale occurs, marketing/sales takes a step back as the customer is already satisfied. Kenny demonstrates that customer service in the construction industry becomes vital throughout the entire process. Especially with repeat customers and word of mouth advertising, where customer service makes an impact.

Looking at Justin’s blog, he also examined WNE football recruits as potential customers. As noted while looking at Kenny’s blog, most industries have a ig push on marketing and sales leading up to the sale. In Justin’s case, the “sale” would be the commitment of a recruit. His analysis of the customer is interesting and continues to illustrate the importance of the customer as we have learned through Drucker. WNE does a lot of customer research in learning recruits and ways to improve on customer satisfaction. Similar to the construction industry, both WNE and Kenny’s construction business hold value to the customer. Lastly, I found WNE’s competitor analysis intriguing in the way they see what other schools do in terms of recruiting.