When Dean Kamen launched his product the Segway, it was without any doubt a welcomed and innovative product. It had the potential to offer consumers a long overdue alternative to oil dependency, unmatched convenience, affordability and effectively increase the productivity of all parties (Engelson, 1995, pp 21). However, barely two years into the venture, a mere six thousand were sold, as opposed to the projected at least fifty thousand. Despite being priced at $ 3,000, it failed to receive the audience it had been set out for, and by 2003, all sold Segways were recalled. Its failure was largely attributed to its pricing, which is central to any marketing venture (Tecsoc, 2008).
An effective pricing strategy is one that offers the most long-term profits to the seller. An efficient price would therefore ensure that the seller maximizes his profit after factoring in the promotion prices, discounts and incentives all the while the consumer is willing to spend for the good. Segway attempted to offer a low price as an attempt o either undercut the competition or they failed to factor in all the associated costs. Before pricing, exact cost quotations must be scrutinized, with considerations for a percentage of overhead costs. Segway should have compared the prices that were offered by the competition for similar products.
When the price was set for the Segway, the manufacturers thought that they had set a price that would encourage highly elastic demand. They anticipated that the price sensitive customers would embrace the offer and thus, they would record many cumulative sales. This was basically an attempt at penetration pricing. Unfortunately, the nature of the Segway as a product did not appeal to the consumers (NetMBA, 2008).
In the case of Segway, it is possible that the low price turn off many potential buyers. For many buyers, the $3, 000 was used as a guide for the quality level, especially considering the fact that there was relative uncertainty about the product. Furthermore, lowering the prices or offering the lowest industry prices does not guarantee the loyalty of the clients. In an industry such as the transport industry, the competition is cut throat, and players are perpetually undergoing progressive discounting rounds. If careful attention is not paid, a product is likely to go under. On the other hand, consumers opted for actual vehicles which would go for around $5,000. Further, the potential clients didn’t not get a sense of high esteem balancing through traffic on a human transporter, not for the $3, 000.It thus failed to fit with the realities of the consumers (Engelson, 1995, pp 31).
It is also possible that Segway failed to accommodate mark-ups in the industry. This to mean that the projected selling price failed to consider the actual channels of distribution; the distributors needed to offer a price that would offer returns on their initial investments. Furthermore, when Segway entered the market, they did not anticipate any failure, that is, they had overestimated the market reception. They thus did not price the product in that way that would enable their survival in case things did not turn out as they anticipated (NetMBA, 2008).
In my opinion, several effective pricing strategies should have been applied, which would have improved the chances of the Segway’s survival chances. Firstly, Segway’s pricing strategy should have dominantly have been demand based. This should have been the central guiding element as far as the perceived value went, which would have gone a long way in determining its potentiality in the transport market. It is important to understand that when the price is right, the seller will make more profit.
Secondly, Segway should have developed a marketing strategy that would have given then a better analysis on the market, its segmentation, target market and potential positioning. This would have been instrumental in making accurate estimates on the demand thus enable the planner to calculate costs, understand environmental details and set pricing goals. This would have also assisted in determining the best client for the Segway. As it later emerged, not everyone would use, let alone use a Segway. It would appeal to a segment of the population, such as students (Business Works, 2008).
Segway should also have taken advantage of psychological quirks. Pricing strategies guru, Dr. Marlene Jensen (2007) proposes that the emotional responses of human brains to seemingly cheaper prices. For example, an item priced at $9.99 is more likely to record higher sales than a similar item priced at $10. She says that ‘There is a learned pattern response in our brains that makes us see $9.99 as much lower than $10. And it persists, even though most of us know this trick.’
It is important that the price be flexible, that is, the price should be in sync with other factors such as the prevailing market conditions, demand and competition. It should be possible to adjust the price either upward or downwards (Business Works, 2008).
All factors considered, it is not always the best strategy to offer the lowest prices in town. In fact, price is not the surest ways to attract and maintain customers. What emerges as the most determining factor is the level of customer service and relevance of the service to the customer.
Works Cited
Business Works (2008). The Price is right. Web.
Jensen Marlene (2008). Pricing Psychology. Web.
Morris Engelson. 1995. Pricing Strategies: An interdisciplinary Approach. Joint Management Strategy: Portland.
NetMBA. 2008. Pricing Strategies. Web.
Tecsoc (2008). Today in Technology History. Web.