MRKT 690 Week 3 DB Forum 2 Example

Discussion Board Forum 2: Thread and Two Replies

MRKT 690 Marketing Strategy Capstone, Discussion Board Forum 2 (thread and two replies)

Thread by [Student Name]

The prompt, the software company and the classmates' posts are composites standing in for the course's own forum; the published studies are real; the requirements follow Liberty's public course guide for MRKT 690.

Thread

A software company sells an appointment scheduling and reminder system to dental offices for $199 a month per office. The founders set the price by estimating their cost to serve each office, about $120 a month, and adding a margin. The market for practice software is growing as more offices replace paper and phone reminders, and the company is gaining customers, but its revenue per customer has not changed in three years.

The product's value lies in recovered appointments. Using illustrative figures, a typical four-chair office loses about 40 appointments a month to no-shows and late cancellations, at an average of $180 in production each. If automated reminders and a waitlist that fills canceled slots recover a quarter of those appointments, the office gains about $1,800 a month, nine times the current price. The company is capturing only a small share of the value it creates, and its price tells offices nothing about what the system is worth to them.

Hinterhuber (2008) studied why companies resist value-based pricing even though researchers and practitioners widely regard it as the most effective approach. He reported that more than 80 percent of companies still price mainly on costs or competitors' prices, and, from a survey of 81 executives in four countries, identified obstacles including difficulty assessing value, difficulty communicating it, weak segmentation, sales force habits and lack of senior management support. The scheduling company shows several of these: it has never measured recovered appointments, its sales team sells features rather than results, and it charges the same price to a solo practice and a twelve-chair group.

Noble and Gruca (1999) organized pricing research into a framework of pricing situations, such as new product, competitive, product line and cost-based situations, each with strategies suited to particular cost, product and market conditions. Cost-plus pricing belongs to situations in which the firm cannot measure demand well or has little differentiation. The scheduling company is in neither position: it can measure the value it creates, and its waitlist feature differentiates it from basic reminder services.

The company should price on recovered appointments, because that is what dental offices are actually buying. I would recommend three tiers by practice size, $249 for one to three chairs, $449 for four to eight and $799 for larger groups, with a guarantee that if the system does not recover at least twice its monthly price in appointments over the first six months, the office pays nothing for those months. The guarantee addresses the value communication obstacle directly, since it makes the company prove the value it claims.

The risk is that existing customers will resist the change. Current offices could keep their price for a year, then move to the new tiers with a report showing the appointments recovered in their own practice. That report would also train the sales team to talk about results, since every renewal conversation would begin with the office's own numbers rather than a list of features. Over time, the company could add a performance-based option for large groups, charging a share of the production recovered, once its measurement has earned customers' trust.

Classmates: in your company's market, what is the clearest measure of the value the product creates?

Reply to Kaitlyn

Kaitlyn, your thread recommended that a new regional energy drink enter grocery stores at $1.49 a can, well below the leading brands, to build share quickly. Penetration pricing can work, but Noble and Gruca (1999) tie it to specific conditions, such as highly price-sensitive demand and costs that fall as volume grows, and the energy drink market may not meet them. Energy drink buyers are often loyal to a brand's image and flavor, and a low price may signal lower quality in a category where buyers associate premium brands with effectiveness. A small brand also gains little from scale before it has distribution, so a low price may simply reduce margin without building volume.

A more promising approach might be to price near the leading brands and invest the difference in sampling and placement at convenience stores, where energy drinks are bought on impulse. If the company does choose penetration pricing, it should plan how it will raise prices later, since customers who join for a low price may leave when it ends, and grocery buyers may resist a list price increase once the low price is on their shelves.

How price-sensitive are buyers in your drink's target segment, and does the company have the scale to make a low price profitable?

Reply to Marcus

Marcus, your thread argued that the coffee subscription service you studied must raise its price from $18 to $22 a bag because coffee bean costs have risen sharply, and you worried that subscribers would cancel. Research suggests the outcome depends on how the increase is explained and on how satisfied subscribers already are. Homburg et al. (2005) found that customers' intentions after a price increase depended on their prior satisfaction and on whether they perceived the seller's motive for the increase as fair, with increases attributed to higher costs judged fairer than those attributed to the desire for more profit.

This favors your service, since the reason is a genuine cost increase. The company should tell subscribers plainly that bean prices have risen, give them notice before the change and perhaps let them lock in the old price for a few months. Satisfied subscribers who understand the reason are less likely to leave. The company might also offer a smaller bag at the old price, so that price-sensitive subscribers have a way to stay rather than cancel, and track which option each group chooses.

Did the service track how satisfied its subscribers were before the increase? Those scores might predict which subscribers are most at risk of canceling.

References

Hinterhuber, A. (2008). Customer value-based pricing strategies: Why companies resist. Journal of Business Strategy, 29(4), 41-50. https://doi.org/10.1108/02756660810887079

Homburg, C., Hoyer, W. D., & Koschate, N. (2005). Customers' reactions to price increases: Do customer satisfaction and perceived motive fairness matter? Journal of the Academy of Marketing Science, 33(1), 36-49. https://doi.org/10.1177/0092070304269953

Noble, P. M., & Gruca, T. S. (1999). Industrial pricing: Theory and managerial practice. Marketing Science, 18(3), 435-454. https://doi.org/10.1287/mksc.18.3.435