About price
There are many ways of having competitive advantages over your direct, or indirect, competition. Certainly, one of the most important is the pricing strategy that a company selects for its products or services. The first thing to ask is here is what does “price” mean?
“Price is a component of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., buyer) in order to obtain something offered by another party (i.e., seller).” (Paul 42).
It is the value of the “agreement” between the buyer and the seller over a specific product or service. In marketing, pricing strategy is very important for having a successful business. What attracts customers to your products is the perceived value that that product gives them, and the price is one of the fundamental parts of assessing the value of a product (Paul 43). It is important not to forget that the price paid for a product does not a financial aspect. For example, you would have to read manuals and spend time learning how to use a particular product. That time is comprised of the price you pay for the product. This is why it is not just necessary to have a low “financial price” as much as possible for your products in order to win the biggest share in the marketplace. It is likely that customers will not be attracted very much to your products if it requires a lot of time to learn how to use them, even though the monetary aspect of the price is low.
“Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities.” (Paul 44).
Segway pricing strategy
Segway was the first of the electrical based cars in the twenty-first century. When it was released, in 2001, the company proudly described it as:
“The first self-balancing, electric-powered transportation machine. With dimensions no larger than the average adult body and the ability to emulate human balance, the Segway HT uses the same space as a pedestrian and can go wherever a person can walk. The Segway HT will allow people to go farther, move more quickly, and increase the amount they can carry anywhere they currently walk.” (techsoc.org, 2008)
If we analyze this statement alone we can identify the marketing strategy that the company is using in promoting its product. As for the pricing strategy that we are going to discuss in this paper, it was based mostly on external factors rather than internal ones. At least at the beginning of the product launch. In marketing, these external factors are the ones that are most difficult to apprehend and foresee. But the Segway HT was seen as the machine that everybody was waiting for and that was a response to these external factors, people’s desires, and way of thinking. As described by Amy Harmon writing in the New York Times, the product was seen by the population as “a transportation choice that fills the niche between walking and driving”, and that:
“The Segway HT could cause cities to be redesigned, help wean the world from oil dependence, compress time and space for pedestrians and raise productivity for corporations and government agencies” (Harmon, 2001).
This is a very important statement to make in marketing. If your product is the one that people have years that are looking for and that fulfills their needs and desires then you surely are going to succeed. Your pricing strategy should follow this line also. And in fact, the price was set at 3000$. But things did not go the way marketers had hoped to. By the year 2003, sales were reported to have reached six thousand units. This report showed the company was far short of the expected sales figures of 50,000 to 100,000 when all sold Segways were recalled, (Kawamoto, 2003). This was exactly just a little more than 10% of the minimum expectancy rate. In this situation, they had to cut the price down in order to cover the costs of production. One of the major internal factors affecting the pricing of the product is “return of investment” (Paul 47). They had to cut costs in order to boost sales.
This event showed that it was a mistake to produce so many units of Segway within such a short time. Especially when you do not know what will be the market behavior toward your product. This is the main problem of the external factors in pricing decision-making. You cannot predict them with 100% certainty. The company expected the market to react very differently. They thought that the commodity of the machine they were offering would suffice to convince people to purchase it. Also, the setting of a price relatively medium, neither high nor too low, would attract more customers. But the sale figures of 2003 showed them wrong and they had tens of thousands of produced units in stock. In order to meet the “return of investment” criteria and cash flow, they decided to cut the price, hoping that people would be more attracted to the product.
In fact, if we search on eBay today, we will find the Segway HD machines to be valued at a monetary price of 4,998$. This price is two-thirds, 66.66%, higher than the starting price in 2001 and much higher regarding the 2003 price decrease.
What happened that changed the situation?
The answer is still in the external factor of marketing for price setting that we have been discussing. During these years one important factor changed: human understanding of the environment. Especially, people’s evaluation and thinking about the danger of environmental pollution. Even during the presidential campaign, it was mentioned several times that global warming and environmental pollution were becoming a serious problem. This was in favor of the Segway machine, which did not release any waste that could potentially pollute the environment. Another external factor that changed during this period was the global rise in oil prices. In 2008, it was much more expensive to maintain a fuel-engine vehicle. This was in favor of the use of Segway which required no fuel to power its engines.
Now people when evaluating the “price” of the vehicle, Segway HT, consider these alternatives also. The “value of use” of the vehicle was increased in comparison to the “value of money” spent on it. The Segway does not pollute and requires no additional fuel costs. These factors combined let people turn their attention to this product. In a certain way, the external factors, that were completely unrelated to the marketing action, changed 180 degrees the position of the company. The marketers began to implement a new strategy. From now on there would be produced as many units as demanded by the market. This would help cut the production costs. On the other hand, if demand increases (as in fact did) then the price would increase gradually with it.
References
Kawamoto, D. (2003). Segway sales haven’t transported maker at News.com.
techsoc.org (2008). Today in Technology History at techsoc.org.
Christ, P. (2008). Principles of Marketing from KnowThis.com.
Kanellos, M. (2001) More Ginger details may be coming at News.com.