Week 6

Class Prompts

I'd like to go through quite a few class prompts this week so instead of starting with my weekly questions I'm going to start here and tie some question information into the prompt discussion if I can. 

One note was to put something interesting you saw in marketing this week.  I did post something this week (last post on May 8th) and I'd like to refer to that one because I haven't seen anything that has caught my eye since then.  I looked through my email to see what great Mother's Day specials came through to see if any got my attention, and there was absolutely nothing unique or special about a single one that I saw!  Very disappointed.  Anyway, my last post about Krispy Kreme donuts and their ability to go about an beyond just still seems very incredible to me.  It makes me wonder how they work with their employees to ensure they provide such great service.  Great employees make you want to go back.  I personally go to Dunkin Donuts (easy locations), but some locations alone are much better than others - the one in the gas station on Sumner Ave. in Springfield MA has always been my favorite due to one of their employees.  It didn't take much, but it made me go out of my way to that one if I had extra time to. 

Another question today was the 'myth' of the irrational customer.  I personally agree with Drucker in that customers are rational, it's just trying to determine why they do what they do.  One of my questions this week related to Comcast and their services.  I think that the Cable service they provide is better than Dish/DirecTV because I've seen what happens to some of these in rain storms.  I would guess that Comcast could consider my decision to be irrational if I switched.  Though Comcast's ability to make me wait, repeat my self over and over to five various people on the phone, and constantly increase my bill makes me consider the others every single time I have to call them.  Companies don't always want to know what they are doing wrong and just chalk it up to bad customer habits or decisions, when in reality most decisions have a reason even small.  I heard one new donut place was opening up on the right side of a busy road when there are two Dunkin Donuts on the other side figuring it would get all the customers that were going in the other direction, even though it may not seem that is a reasonable decision - to avoid crossing the street.

Then we discussed some pricing strategies.  Will pricing objectives strategies impact the net contribution model?  The answer is absolutely! Depends on price elasticity, a change in the price could significantly affect the units sold, which in turn influences the demand and the market share of the product.  If a customer introduces a new product using the penetration method (offering a low intro price) the goal is to get a higher market share and demand, but price will be lower in the model.  If the customer uses the skimming method then the original two factors of demand and market share may be lower but the price will be higher.  So depending on the amount of each, the company needs to look at all the various options to see where the net contribution model is where they want it to be and go with those.  Changes in each part of the model will impact the remaining parts.

Drucker has his own take on pricing strategies.  He believes that the companies should look at the price the customer would pay for the product and then determine a cost that works with that price.  There doesn't seem to be a model or calculation, but rather just a look into the market to see where the customers would buy a product.  Rather than set pricing based on a percentage above cost, this method would be to fix costs to make it work at a good price.  If companies looked at products this way they would be able to more clearly see products that cost more than they are worth and not venture out into those products.

Pharmasim

Pricing Strategies can be implemented in the Pharmasim program.  Below is a look at the various stratgies and different things to consider in the Pharmasim world.

EDLP (Every Day Low Price) - This is the Wal-Mart approach.  In Pharmasim we could look at our gross margin and bring the price down to a low reasonable price for customers that is still above our gross margin to ensure we are making a profit still.  We'd need to also consider our advertising strategy in Pharmasim here - if we are going to go for the EDLP method we may want to reduce the high priced advertising company we have and focus our strategy on benefiting the consumer with the low price instead of trying to compete on quality.

High/Low Pricing - This is showing the customer an originally high price and offering sales.  We could do this with the use of coupons in Pharmasim.  If we keep the price high and offer the higher coupons this would really show the high/low pricing.  We could also use this in our channel discounts with our distribution channel customers (B2B) by increasing or keeping a high price and then offering the largest channel discounts.

New Product Skimming - This is introducing a new product at a high price and really showing the quality of the product.  This would be the opposite of the strategy mentioned for EDLP.  I would think we would want to look at our competitors, make the new product price above theirs, and keep that high priced advertising firm to show our great quality.  We will sell less, but hopefully at a much nicer gross margin.

Net Product Penetration - This will be similar to the EDLP method just the price will be an introductory one instead.  We can start off low to build a customer base and then eventually incrementally increase as we have those loyal customers and move to a high/low strategy or stay low if our gross profit proves to be effective.  This should allow us a high market share.