Professional Documents
Culture Documents
Slide Decks CPD
Slide Decks CPD
Slide Decks CPD
Introduction
Teamwork
Writ reports on 3 out of 7 cases but all cases will figure in the exams.
Peer Evaluation: Your grade will be lower if your team members evaluate you
poorly on contribution to the teamwork.
Individual
TEXT BOOK
Mfr &
Consumer
Mfr &
Mfr & Consumer
Consumer
Producers
Consumer
Self-organized,
market Place.
Producers
Consumer
Producers
Consumer
Self-organized,
market Place.
Producers
No middle man Consumer
Each category has its own market place (one for food items, another for utensils, etc.)
➔ Many could afford to be simply consumers in a given market place
but each directly deals with manufacturers one-on-one
➔ Barter giving way to Currency as medium of exchange.
Individual
Dealer / Individual
Broker
Business Business
Dealer / unit
unit
Broker
Broker doesn’t take title to goods, works on commission, has access to better info. on
the market-level information (going price, trend, legalities, supply-demand situation,
etc.)
Individual Consumers
Barrier?
Market makers,
Trust providers, Aggregator/ 1. Malls, LinkedIn, job sites,
Logistics Distributor 2. Amazon, Alibaba, Flipkart
Providers for 3. Groupon, Uber/ola, Unanu
e-dealers 4. Google search-ad
(goods, cash)
Businesses, SMEs, smaller retailers
(w/o market reach/power), spare capacity
(randomly coming up in some cases)
Channel members’ dual role
Middle-men Taking Title to Goods And Assuming Risk too
40 Contact lines
filled by
Logistics
providers
Info. On
What,
Why [Pull]
Retailers (facilitator & barrier) When, how
where, what
(Push)
Consumers
More intermediaries ➔
More problems or More benefits?
Manufacturers
Logistics Providers
Wholesaler : Reduces # of transactions
(Distributor) from 40 to 14!
Logistics Providers
Retailers
Consumers
Drastically reduces Transaction Costs [search, set-up, negotiation, logistic (inventory, safety
stock), payment and other costs involved in the transaction]
Would the wholesaler siphon off more than s/he saves for the channel?
Channels and Pricing
Consumer
(or another manufacturer in B2B/Industrial)
Manufacturer
CHANNEL ISSUES:
Spread info. on supply availability on when, SEEK:
where, how, etc., and at what price. Economies of Scale
Predict demand (when, where, how, etc.) (same place, same product,
Identify segments same brand, large quantity)
file:///Users/nus/Downloads/Tata%20Motors%20plans%20a%20deal%20in%20every%20nook%20and%20corner.pdf
Business Standard, Aug 8, 2015 article
Place (Location, Location, Location!)
• Search engines on web: top-located sites get max clicks; 2nd page etc.
have no takers
• Digital products (ex: software, data, files, e-cash, email, I-tune, e-books,
apps, video-games) delivered wherever you are (thanks to internet, wi-fi,
bluetooth, etc.) at whatever devise you have (laptop, desktop,
smartphone) in whatever OS.
• Global reach ➔ enhances market potential greatly ➔ Purchase driven needs/uses!
25
Key differences: Europe vs. Asia
EUROPE ASIA
Density
London – 5.300 per sq. km Singapore – 11.000 per sq. km
Paris – 3.800 per sq. km Mumbai – 33.900 per sq. km
Berlin – 3.500 per sq. km Manila - 15.400 per sq. km
Delivery Cost
Minimum labour cost
France - USD 1822 India (Dheli region) - USD 107
UK - USD 1520 Indonesia (Semi-skilled) - USD 112
Spain - USD 951 Singapore - (USD 612 - 1224)
Gas prices (95A) per liter
France - USD 2 India - USD 1,3
Germany - USD 2 Malaysia - USD 0,6
UK - USD 2,3 Singapore - USD 1,6
Overall expenses of utility and other maintanace services
26
Time
[Delay and uncertainty create anxiety, feel of loss of control]
• Guaranteeing time (ex: Domino’s, Jiffy Lube, Changi, Indigo in India) reduces
uncertainty and anxiety ➔ Strategic shift leading to branding!
• Addressing Time gap and Space Gap: AESCO, American Wells in PCP
Healthcare in the US
Milwaukee Electronics Corporation:
Screaming Circuits
(Family firm of Jered, one of 2011 Channel course students)
• Utility driven:
– Customers need Choice and Reliability/Support from every choice!
– Pre-assembled (auto, construction, electronics programmed
chips), Ready-to-consume drinks in ”tetrapak” mini-boxes ➔
Efficiency & convenience driven
– Instant coffee, Coffee filter-packs from Folgers, Coffee decoction in
tetra-pak, Nespresso Coffee-Cups; Ready-to-wear/eat (apparel,
cereal bar) ➔ Taste Vs. Convenience
– Shampoo, Detergent in Sachets and in multiple sizes ➔ Driven by
heterogeneity in purchasing power ➔ Increases market size
AESCO
Ownership / Possession
• Enabling transaction by making it …
McKinsey raved about the Vivek’s brand as more trusted than the brands
it carries...
During the initial stages the consumer durables were considered luxury,
and so to make them reach the mass middle class families Viveks started
an in-house easy, monthly installment scheme. This also helped the
company increase its business and gain new customers.
Ref: http://www.indiamart.com/vivek-limited/#profile
After-sales Service
• Making sure that consumers
• Could buy without any uncertainty about product’s performance (money back
guarantee, warranty & extended warranty, insurance)
• are able to install/prepare and use the product fully and efficiently (product
manuals, online help, demonstrations, sales personnel, 24-hour service, FAQ
• know what to do when the product breaks down or misbehaves (call center, 3rd
party service certification and training, back-up plan suggestions for customers)
• have minimum downtime when the product breaks down (24-hour service,
guaranteed repair time -IBM, Cat, B&D-, availability of spare parts, clear
instructions on what’s under warranty etc.)
Post 2000:
Technology,
Ops Mgt, Novel
business model
Q1: Look at Total Channel Cost and ask who should do what.
Remember that someone has to do the function.
$ Utility to Customer
Cost
Vs.
Utility
IKEA
here $ Utility to Customer
cost to Customer
to fill the gap
Channel Flows
Flows
Physical Possession
- Inventory, logistics,
Bulk breaking, Returns
Ownership
- when title transfers
Channel Gap Negotiation
Knowledge / Skill
Elements Promotions
Financing flow
Place, Time, Form. Risk taking / Guarantee
Trust (due to info. asymmetry). After-sales service
Possession/Ownership, Payment. Payment
Returns, After-sales Service.
Consumer Platform
Service Outputs Demanded (SOD)
Manufacturer Platform
Channel Gap
Elements
Place, Time, Form. Flows
Trust (due to info. asymmetry).
Possession/Ownership, Payment.
Returns, After-sales Service.
Consumer Platform
Service Outputs Demanded (SOD)
Some Examples
Service Output Demanded Element(s) Flows/Functions
Stay on the same webpage Place Answer Dash [bring responses in]
Roadside repair Place, Time 3rd party service people [Tata Ace]
Home delivery of grocery Place, Time, Inventory, Logistics, Ops Mgt, OR,
Form Returns, Payment, Labor, Bulk
Economies of Breaking
Scope
Flows Providers
Various
independent
firms (Channel
members including
manufacturer and
Channel Gap consumer)
perform functions
Elements to fill the gap:
Channel Functions
Place, Time, Form. or Flows
Trust (due to info. asymmetry).
Possession/Ownership, Payment.
Returns, After-sales Service.
Consumer Platform
Service Outputs Demanded (SOD) are sometimes subtle,
but they definitely vary across segments and are dynamic.
Some commonly observed Channel Flows
Varies across
Inventory,
products
Logistics LAST MILE
CONNECTIVITY
TRUST
Physical Physical Physical
Possession Possession Possession
Risking Distributor; Retailers (including bricks and mortar, catalog, online); VAR,
Credit card company; Franchisees
After-Sales Service
Retailer / Dealer, Distributor, Certified 3rd party people, Customer
One-stop-shopping, Solution
Marketing Flow Cost Represented [Fixed and Variable]
Ownership Inventory carrying costs [including handling costs, and costs of loss,
returns, damages]
Promotion Personal selling, sales promotion, trade show costs, coupon handling
costs
Negotiation Time and legal costs, especially between channel members and in
B2B markets.
Financing Credit terms, terms and conditions of sale
After-Sales Service Labor, Spare parts, Skills training, [Cost of Consultation, Cost of
identifying, gathering and coordinating info. of complementary
goods for Solution-selling and One-stop Shopping]
Channel Flow Cost: THE EFFICIENCY TEMPLATE
(Segment specific)
WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER:
COSTS* BENEFIT FINAL 1 2 3 4 TOTAL
POTENTIAL WEIGHT (end-user)
[See next *
slide] .. (High,
Medium, or
Low)
PHYSICAL 100
POSSESSION**
OWNERSHIP 100
PROMOTION 100
NEGOTIATION 100
FINANCING 100
RISKING 100
ORDERING 100
PAYMENT 100
TOTAL 100 N/A 100 N/A N/A N/A N/A N/A
NORMATIVE N/A N/A N/A 100
PROFIT
SHARE***
* Entries in column must add up to 100 points.
** Entries across row (sum of proportional flow performance of channel members 1 through 4) for each channel member must add up
to 100 points.
*** Normative profit share of channel member i is calculated as: (final weight, physical possession)*(channel member i's
proportional flow performance of physical possession) + … + (final weight, payment)*(channel member i's proportional flow
performance of payment). Entries across row (sum of normative profit shares for channel members 1 through 4) must add up to 100
points.
Ex: BUILDING MATERIALS COMPANY EFFICIENCY TEMPLATE
FOR CHANNEL SERVING SEGMENT THROUGH RETAILERS:
UNDISGUISED DATA
WEIGHTS FOR FLOWS: PROPORTIONAL FLOW PERFORMANCE OF
CHANNEL MEMBER: [Can be obtained from ranked
Data-of- who-provides-how-much also]
COSTS BENEFIT FINAL Mfgr. Retailer End-user TOTAL
POTENTIAL WEIGHT
(High, Medium,
or Low)
Physical availability
Digital availability
(on websites like Amazon.com)
Distribution is through distributors (formulators)
and dealers / retailers / machine shops
➔ No inventory OR inventory in
a few warehouses OR with mfr
➔ Inventory in every point
➔ Cost (locked up capital, risk of obsolescence,
➔ Info on availability: 100% reach
damage and loss)
into each “searching” customer
➔ Coverage limited to marketplaces / malls
➔ “Availability to Acquisition” takes
➔ Margin for each member
time
➔ Availability = Immediate acquisition BUT…
➔ Delivery cost is high, aggregated over
Availability = f (demand forecasting, Space)
all customers over time.
Courtesy: Text Book “Marketing Channel Strategy” by Palmatier, Stern and Ansari, 8th edition, page 169
Courtesy: Text Book “Marketing Channel Strategy” by Palmatier, Stern and Ansari, 8th edition, page 169
Channels and Pricing
Retailing
Or, is it?
Announced store openings and closings
Excluding grocery stores and restaurants: USA
Choices for other segment: Choose the retailer based on habit, proximity and price.
A simple, powerful demand Model:
Consumers live on a market represented by a street here.
Retailers can put up their shops at the corner of the street.
Should both choose C2C? ➔ Both retailers source flowers from Wholesaler
Should both choose price-based attraction? ➔ Both would go to Auction
Should one choose C2C and let the other go for price-based attraction?
R1 R
2
p1 X 1-X p2
Price John
Price
to choose lives here
Cost to go to R1 Cost to go to R2 to choose
Ask which retailer would John choose, if he does not seek specific flower?
Impact of Difference in Cost of Procurement –
At Wholesaler (c1) Vs. At Auction house (c2)
Retail Match-up
ex: Zara, the Instant Fashion
Ex. of Supply factors in market:
Branded Vs. non-branded Vs. Store brand
Brands across quality tier / cost structure
Regulated Vs. unregulated, Variety
Spare capacity but unpredictable
Excess capacity ➔ Trade deals
Supply Many suppliers ➔ Good prices Zara owns
Manufacturer/ side factors Flexible manufacturing, quick design,
Integrated group of designers [no heroes], …
Smart retailer
retailer
Acquisitions, Location &
Store/web layout, Operations, Logistics, IT,
Reading the market & Fast responsiveness,
Data analysis, sales-force training
https://en.wikipedia.org/wiki/Zara_(retailer)
Retail Match-up
ex: Big traditional retail formats (Non-digital goods)
Hyper-
markets High
assortment width
across categories
Targets a wider market [Mktg-Dem]
Retailer’s Generic Goals
1. ATTRACT:
Location, Location, Location [be where customers go, proximity, top-sites in web-search]
Habit-based shopping [comfort zone, stickiness on web] = f(shopping frequency,
ambiance)
Adv. / Promotions (New product launches, New Year sale, price-featured adv.) and
additional freebies (cooking class, wall-painting, wooden floor laying, google-map,
GPS-tracking, gmail etc.) so as to be always present in the customer’s top-of-the-mind
➔ Build a fort around the customer! ➔ Quick recall and en-slavement
Loyalty programs, rewards: Effective in hiking Switching Costs!
Positioning on Pricing: EDLP, Hi/Low, Double Couponing policy, Price matching.
2. RETAIN / REPEAT VISIT [Make her hang-in there with no guilt feeling]
Store layout, Merchandizing, Assortment width and depth (size, design, color/ smell etc.,
brand-name), Ambiance, in-house SODs (Convenience including easy purchase decision,
quick check-out and easy returns-process, technical/sales help, eateries and kids-care,
etc.). Online: webpage layout, easier browsing, informative & interactive, delivery
commitment, …
Franchising
Channel Conflicts
Outsource a channel flow? Out-source
the flow (ex: pay DHL for this
Cost of providing the Flow (ex: inventory) Flow as and when it happens)
Vertically
integrate
the flow
• Start filling the Channel Gap yourself by assuming fully one or more of the
Marketing flows, or buying the members who provide those flows.
• Seek efficiency on time dimension [ex: auto-financing by auto-mfrs, Doctors
owning test-labs]
• Seek effectiveness [ex: Gino in Industrial segment, high-end fashion goods
marketers (zara integrating backward to own designers, and forward to own
retailers)]
• Seek control and raise entry barriers [ex: coffee retailers buying coffee plantations
and OJ makers buying orange groves (backward), carbonated drink manufacturers
buying bottling plants (forward), insurance companies owning hospitals (lateral)]
• Build bargaining power [store label by retailer (backward), factory outlet by
manufacturers (forward)]
• When the “marketing strategies are hard to execute across various intermediaries
[ex: marketing of a less-priority item like TAMUL plates] ➔ When a channel
member does not help with a new product, temporarily absorb the flows
• A business proposition based on “Asset” Specificity [The other member is
exclusive to your products and no-one else in the market can do it for you]
– Assets: Knowledge (jewelry), relationships (Japanese auto companies), brand equity
(private label), built-in capacity in warehousing and other material-handling
equipment (bottling plants, other unique products such as explosives/nuclear/oil and
other power materials, current dilemma of some 3PLs)
Decision making road map: Vertical Absorption of Flows
Presume outsourcing is more attractive
Start than vertical integration
here GO!
NO
Outsourcing remains
attractive
YES
YES
Volatile, uncertain environment
(accelerates effect of company-specific
investments)
Vertical Integration,
increasingly attractive
Middle Ground
(Neither free-form nor hard integration)
Customer
Manufacturer / Franchisor
Customer
Types of “franchising”
Gas
Station
• For a new business, fast and efficient (i.e. less costly) growth is ensured →
McDonalds, StarBucks
• Best combination of the ‘global’ product / business strategy and the local
market knowledge ➔ Glocalization
• Cannibalization across retailers for the given product is reduced → Pizza Hut
Franchising - Problems
The company, partly owned by Shell (?), was ranked first on National Oil and Lube News 2011
Jiffy Lube was ranked number 15 in Entrepreneur Magazine’s 2012 Franchise 500 and number
73 on Franchise Times 2011 Top 200 Franchise Chains by Worldwide Sales.
In 2003, Jiffy Lube was the focus of a KNBC investigative report that alleged that Jiffy Lube was
charging customers for services not performed. During the investigation, five out of nine Jiffy
Lube locations charged undercover reporters for work that was not performed.
After the investigation aired, Jiffy Lube performed training program, installed cameras in their
stores to allow customers to observe repairs.
In May 2013, NBC (Los Angeles) television investigation reported not only of fraudulent
practices detected again at the majority of investigated Southern California Jiffy Lube stores but
that the current fraud was worse than that found in the original investigation.
Franchising - Problems
• More time spent in discussions and ‘fights’ when times are bad or
when ego of the players surface, or due to market dynamics
– market dynamics
• new technology (1-800 number, internet),
• changes in franchisor’s business as in PH-Tricon case,
• smart competitor moves (Home delivery, online),
• demographic and life style changes
• takes time to implement changes in ‘flows’ to exploit new
opportunities
• Company owned stores (dual distribution)
– to be used for supporting (ex: trying new ideas, maintaining price levels, slow-
moving brands) but ‘leveraged’ against franchisees sometimes
• Federal laws, and obviously state laws, support franchisees
– historically franchisees were exploited
– many franchisees are small or family businesses
– “control” is always looked down and is a suspect
Channel Conflicts
Channel Power
Spotify Free for basic music
Music streaming app Monthly fee for premium use
Make money on ad
(Android-playstore, Internet)
Music P
Payment Very small commission
Use app store to download app and Gateway for finance intermediary
play music, and pay for premier service
Customers listening to
music streams
Spotify’s complaint, filed on Monday (11 March, 2019) to the European Union’s
antitrust arm, alleges that Apple in recent years has abused its control over
which apps appear in its App Store with the aim of limiting competition with its
streaming service Apple Music
Free for basic music
Spotify Monthly fee for premium use
Music streaming app (iOS) Make money on ad
Music 0.7 P
Apple Apple gets 30% of P
Apple app store to download app and Gateway UNTIL 2016
play music, and pay for premier service
Customers listening to
music streams
Spotify’s complaint, filed on Monday (11 March, 2019) to the European Union’s
antitrust arm, alleges that Apple in recent years has abused its control over
which apps appear in its App Store with the aim of limiting competition with its
streaming service Apple Music
Free for basic music
Monthly fee for premium use
Make money on ad
Spotify Spotify’s own
Music streaming app (iOS) Website for payment
Music
https://www.t4.ai/industry/music-streaming-market-share
Channel Conflicts: Some examples
• ABB starting e-commerce claiming that channel members are not “marketing” ABB
• Gino Vs Jingua
• Competition can come from other channel formats threatening the business of
every channel member in the current channel [e-commerce, Domino’s delivery]
• Dynamics due to new technology (ex: AI), social and demographic changes,
globalization, increasing end-customer demands, competitors [Domino’s Vs. PH]
➔ Dynamic forces affect the interdependency
CONFLICT _
Level of tension, frustration, ECONOMIC SATISFACTION
disagreement in a relationship of focal firm: positive affective
experienced by focal firm response to financial rewards
derived from relationship or
_ economic gratification
_
TRUST
Focal Firm’s belief in
counterpart’s honesty + NON-ECONOMIC SATISFACTION
and benevolence of focal firm: positive affective
+
response to psycho-social aspects
of relationship, or gratification
COMMITMENT from non-financial sector
Focal Firm’s desire to continue
relationship and to sacrifice
to build and maintain it
High Cooperativeness
Collaboration, (see
Accommodation next slide)
Coordination or
problem-solving
Compromise
Low High Assertiveness
Assertiveness
Competition or
Assertiveness:
Avoidance Aggression (I lose one
Being concerned
eye, you lose two!)
about one’s own
Low Cooperativeness bnefits.
Cooperativeness: Being
Based on Thomas (1976) concerned about the
other party’s benefits as
well
Co-ordination Strategy: Need for a Channel Captain
If Carrefour removes
both the top brands
from the shelves
Only equilibrium is top-left cell because for both “Accepting” is the dominant strategy.
Carrefour cannot
afford to survive
without them, and
so withdraws the
Mutually best would be the Bottom-Right corner.
threat and goes back
But, each Manufacturer is afraid that the other would accept GPM
and hence offers themselves. Thus, in Nash Equilibrium, both lose.
to business as usual.
“Zero” is base level
Solution: Nash Equilibrium
Other buyers
This Teaching Note is author ized for use only by TRICHY KRISHNAN, Indian School of Business (ISB) until A ug 2021. Copying or posting is an infr ingement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860.
Teaching Note—The ITC eChoupal Initiative 604-077
E-Choupal + Mandi
Exhibit TN4 New Supply Chain and Information Flow
Mandi
Soybeans (CAs) Authorized price
50%
Soybeans (travel expenses reimbursed) 50%
Farmer ITC
Oil, lamps, seed, etc.
Samyojak
Prices Market
Sanchalak Conditions
Internet
2.0 What made this implementation successful? How was value created?
2.1 What principles did ITC use when conceiving/building eChoupal? (10 minutes)
There are at least eight principles as outlined in the analysis. List them on the board as
students come up with them. (Refer to Exhibit TN1)
2.2 What barriers – real and potential – did ITC face as it launched eChoupal? (10 minutes)
Channel Competition
Competition
Manufacturer Manufacturer
B
}
A
Co-operation
&
Competition
Retail Competition
Channel Channel
Intermediary Intermediary
End
consumers
Omni-channel
Consideration
Buying Stage and Channel Preference
Info collection
Repeat /
Decision Post purchase
and Action activities
• How to synthesize all the info bits, done through repeated interaction
• Make a decision
• TRUST
Pricing
Introduction, Cost
Cost
Cost Structure
Difference [across
•
industries]
Cost structure differ across industries
• Grocery store
• Automobile manufacturer
• Doctor's office
• University
• Airline
• Cellphone communication, cable TV
Cost Structure
Difference [across firms
• in an industry]
Sometimes it is possible for two companies in the same line of business
to produce the same type of product with different cost structures.
– One company might use a labor-intensive production method, resulting in high
variable costs, while another uses a capital-intensive method, resulting in high
fixed costs.
– One company take investments on a long-term basis and the other on a short-
term basis
2. AVOIDABLE: Costs that were planned but have not yet been incurred
(which can be stopped). Non-sunk costs. [Sunk: storage room rent; Non-
sunk: daily labor to move the goods in the storage room]
Identify Incremental
Variable Costs
• VARIABLE COSTS ARE GENERALLY INCREMENTAL / AVOIDABLE
• But be careful of averages! The incremental variable cost for a change in sales is often not equal to the average
variable cost
• Examples:
• Should the store hold the inventory until next September or sell it at a
loss in the summer?
Discussion Question
• In 2008, Subway introduced a tantalizing deal: For just $5, one could purchase any “footlong” (12-inch)
sandwich.
• The promotion was a smash hit with cash-strapped customers during the recession — and its jingle (“five-,
five-, five-dollar footlong…”) became the company’s calling card.
• Within a year, foot traffic skyrocketed across the franchise’s thousands of locations.
• Revenue from $5 footlongs alone topped $3.8B.
• It was, according to many industry analysts, one of the most successful promotions in the history of
American cuisine. …
Ref: https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
• “All of a sudden, customers
who’d pay $3 for a 6-inch were
paying $5 for a footlong,” said
Frankel. “Traffic went up, sales went
up, profits went up.”
https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
• For franchisees, Subway is appealing in that it boasts the lowest relative entry cost of any major franchise:
The average total investment to launch one only runs $140k to $342k, compared to $1.3m to $2.2m for a
McDonald’s.
• In return, Subway makes money from taking an industry-leading 12.5% cut of its franchisees’ weekly gross
sales.
https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
https://mail.google.com/mail/u/0?ik=957cda971d&view=pt&search=all&permmsgid=msg-
f%3A1692940566935300509&simpl=msg-f%3A1692940566935300509
Identify Incremental Opportunity Costs
Value Pricing
Price
Cost
Pricing
Product
Consumption Reference
Price
Economic and
Negative Ex: IKEA, WalMart: Assembly by consumer,
Emotional utility ➔ differentiation High search cost & less help
Monetization? Value [Product/ service]
[Lowered levels of SODs]
Max price willing to pay =
Reservation Price
Positive
differentiation Ex: Surf, 5-star restaurants,
Value JD750, First class vs. economy class,
Product/Service StarBucks coffee
Price Reference
Price
Cost
Pricing Formed by
consumers
Product
or/and
Consumption Reference marketing
Price strategies
Economic and
Emotional utility ➔ -ve differentiation Influenced by:
Value Marketing strategies by you
Monetization? and your competitors,
prices of substitute and
complementary products,
Reservation Price supply & demand conditions
of macro-economy,
+ve product or service-based
differentiation
Value
[product/Service]
Price Reference
Price
Formed by
consumers
or/and
marketing
Cost strategies
New Product
Provides new utility Utility-saver [time, $, effort] (B2B, B2C) ➔ Differential is Economic
Improves Safety, Environment, health, Livelihood, etc. (B2C, B2C)
➔ Differential is Psychological [Perceptual map + Conjoint]
Improves throughput, quality/performance of end-product (mostly B2B)
➔ Differential is Economic
Acceptable
price to the
consumer
Ref price
Marketing Efforts
in communicating the differential
utility
Pricing Formed by
consumers
Product
or/and
Consumption Reference marketing
Price strategies
Economic and
Emotional utility ➔ -ve differentiation Influenced by:
Value Marketing strategies by you
Monetization? and your competitors,
prices of substitute and
complementary products,
Reservation Price supply & demand conditions
of macro-economy,
+ve product or service-based
differentiation
STP
Value
[product/Service] (Segmentation,
Price Targeting,
Reference Positioning)
Price
Formed by
consumers
or/and
marketing
strategies
Cost
Pricing Formed by
Product consumers
or/and
Consumption Reference marketing
Price strategies
Economic and
Emotional utility ➔ -ve differentiation Influenced by:
Value Marketing strategies by you
Monetization? and your competitors,
prices of substitute and
Network Reservation Price complementary products,
Externalit supply & demand conditions
of macro-economy,
y +ve product or Service-based
sometimeOther users differentiation
STP
s Value
[product/Service] (Segmentation,
Exploit?
WOM Price Targeting,
Reference Positioning)
Sales Price
Formed by
EOS consumers
Forward looking? or/and
marketing
strategies
Cost
• Understand what ref product you had used to develop the product in R&D
• Analyze the price of the product– window shopping, visiting online websites (B2C),
digital informants like https://www.digitaltrends.com/
• Buy panel data from companies like CMIE and Nielsen to calculate the “price actually paid”
$-
1 10 100 1,000 10,000 100,000
Volume
Customer 1 Customer 4 Customer 7
Customer 2 Customer 5 Customer 8
Customer 3 Customer 6 Customer 9
• Result: Huge success; Reason: WOM that it is best for making idli!
• Post-success event: Kept pushing the price up and up, to >30% of the top brand. ➔ less demand!
URAD-Dhal 1 kg pack (whole)
https://sresta.24mantra.com/overview/about-us/
B2C products: Fit into the existing price range, in one of the tiers or just outside of either end
Best Buy
1983: Name changed to Best Buy; adopted Super Store format and expanded
2000-12: Walmart opened online in 2000 to compete with Amazon. Acquired lot of
customers. When CC went down, moved aggressively into consumer electronics
both online and in-store, but the in-store expansion proved a failure.
Best Buy (Big Electronic Retailer) Case
Consumer Electronics:
Better websites, easier navigation, SEO, better product info., quicker delivery
Boosted store traffic thru establishing relationship with Canon, Google, Intel, Sony
Samsung, Apple, etc. (BB’s own salespeople, Shop in a Shop),
and making ship-from-store a big thing. Stocked all new products and introduced
EOS (Ex: mobile devices+connected homes+wearable tech+Security, etc.)
Ability to
Evaluate and
“availability-of-
resources” [Pricing is a part of the
to do search overall marketing strategy]
= function of
Education level,
Urban/rural,
Depends on other
Internet savvy? Choice is rather signals such as
random and brand reputation
convenience based
Low
Low High
Price
Elasticity Higher-level
No clear (more macro)
segments (sensitivity)
Actual of demand analysis
Price
Distinct
segments
Micro
analysis
Aggregate Demand
Segmented pricing /
Choosing target segments for focusing
Pricing to Accessible Segments
• Understand the true segmenting variable(s)
– Correlate as much possible with accessible variables’ combination
– Make sure by hit & trial (data analysis) tweak the accessible variables till correlation is good
• Make sure boundaries are clear between the segments
• Approach the segments with different products, in different channels, with different price and
promotion schemes.
Cost of leasing-in:
Increasing but could fluctuate
due to changes in use
Cost of owning
Maintenance
One-time cost
CapEx
[Need CFO
Approval] Critical point Can be accommodated
for customer by adding depreciation
SaaS price [3-part], cost to periodical maint. cost
[dept. approval enough!]
Year
Replacement
cycle
Customer preferring SaaS: Department vs. CFO, Less headaches, Can seek latest software advances, can snap out anytime,
No tying up of Funds (opportunity cost), no technical team to maintain the product, 24X7 help, reduced switching cost
Supplier
(Storage, Software)
Asset consolidation & EOS,
Product and Support team Better tech upgrading,
Maintenance, More skillful
Higher utilization
Rate, Lower breakdowns
➔ Lower Cost-to-serve
➔ Lower price
Demand comes up at
Different times, quantum
[Think of Uber but not as a platform]
…
Customers
3-Part Tariff
Fee in a
given period
Parts: 1, 2, 3 Fee paid this period
r = F + [Q - Qo] r
Price, Cost
Manufacturing Cost
(distribution and
marketing costs are almost
same or commonly shared)
In his guest talk, Ankur said that Adobe does not use this scheme because
Engineers find it very difficult to isolate features and do include/exclude a feature easily.
Does this mean that Type 3 obviates Type 4?
Pricing to Inaccessible segments: Type 5
Dynamic pricing / Yield Pricing
Leisure Business
trip (lower trip (higher
reservation price) reservation price)
Prob.
of booking
30 15 Today
Postpone
low margin
(Bucket) Seats L.T.
allotted for L.T.
and B.T
T T-7 Date
days days ... of
before before journey
Pricing to Inaccessible segments: Type 6
Bundling and Pricing
• Examples:
• PC+printer+…, hotel menus, product +warranty+..,
car+options, MS-Office Suite, cereal manufacturers
bundle various brands, pharmaceutical companies
bundle their own with generic versions, theaters bundle
concerts, industrial concerns bundle machines with
contract services, cell phone billing...
• usually, bundle price < sum price of parts
• parts in bundle need not be complementary
Pricing to Inaccessible segments: Type 6
Bundling and Pricing
3 * Segment 2
1 * Segment 1
1 2 3 4
Reservation price
for Product A
Pricing to Inaccessible segments: Type 6
Bundling and Pricing
1 1 1,2 1,2 4 4
3 * Segment 2
2 * Segment 3
1 * Segment 1
1 2 3 4
Reservation price
for Product A
Pricing to Inaccessible segments: Type 6
Bundling and Pricing
2 1 1,2,3 1,2,3 9 5