teachthe4ps.com » Costs

Harley-Davidson Adapts its Marketing Strategy to Ride Out the Recession

Joe Cannon — Sat, 05 Nov 2011 16:38:37 +0000

Harley-Davidson’s sales of premium motorcycles have suffered in the recession — falling more than 40% from its 2006 peak. Harley cut costs with more efficient manufacturing and labor cuts. It has also carefully adapted its marketing strategy. For one, the company is trying to broaden its target market — trying to lure women, minorities, young adults and people outside the U.S. It must target these new markets with caution; Harley doesn’t want to dilute its carefully crafted macho image. Harley’s marketing chief notes, “We’re not trying to be everything to everyone, we’re trying to be our thing to more people.” So Harley has adapted its promotion and products to appeal to new segments. This is not an easy task — and your macho image might be lost when riders look around and see a growing number of women riding Harleys. The article provides a nice example to use with marketing strategy planning for product or promotion. You could ask students for other ideas about how to adapt the company’s strategy for these new target markets.

You can read more about Harley’s efforts in this Wall Street Journal article, “Harley, With Macho Intact, Tries to Court More Women” (October 31, 2011, non-subscribers may need to click here). Also posted at Learn the 4 Ps.

The Business Side of FarmVille

Joe Cannon — Tue, 13 Sep 2011 22:40:44 +0000

The business side of online games is quite fascinating. In our text book, the segmentation chapter opens with a case highlighting how Nintendo grew the gaming market by designing products for new gamers. The easy-to-use Nintendo DS hand-held and the Wii console targeted girls and senior citizens with easy to learn, fun games. Zynga did Nintendo one better when it developed online games for Facebook. Its FarmVille soared in popularity with 10% of all Facebook users growing virtual crops online.

This example is a bit complicated, but it demonstrates a number of important marketing concepts:

Price and the freemium business model. Freemium refers to a business model where most customers use a product for free, while a few power users cover costs. More than 95% of Zynga’s 150 million monthly visitors pay nothing to play its games. The other 5% pay hundreds and even thousands a year for virtual products that enhance their gaming experience. For example, $5 might get you a chicken in FarmVille, a skyscraper in CityVille, or an anglerfish in FishVille. Of course they love to sell these low cost virtual products…
Fixed and variable costs. There are minimal fixed costs for creating a new anglerfish, but the variable cost of producing hundreds of thousands of them is very small. Almost no variable cost.Segmentation and targeting. In this post at TechCruch (“Who Spends The Most Money In Freemium Games?” September 8, 2011), you can see by age group, who uses mobile freemium games — and who “spends”. Not surprisingly, while more than half of users are under age 24 — this younger market contributes just 21% of the spending. Consequently, most of the action in online games targets an older demographic. And of course a little analytics can identify what products encourage spending…
Marketing research. In “Virtual Products, Real Profits,” (Wall Street Journal, September 9, 2011, non-subscribers click here), Zynga’s president of data-analytics says, “We’re an analytics company masquerading as a games company.” Zynga analyzes game player behavior and adapts the game to get players to play longer or spend more. For example, after finding that FishVille players bought the translucent anglerfish much more often than other sea creatures, they created more variations on the anglerfish.

I don’t play these games — but I have Facebook friends who love them. Some of your students might relate to these examples. Also posted at Learn the 4 Ps.

$375 (or more) for a pair of jeans!

Joe Cannon — Sat, 23 Jul 2011 17:40:09 +0000

The new Phantom jeans from True Religion have a list price of $375 — which is a deal when you consider Gucci jeans can go for $495 to $665. You might ask the same question I did “How Can Jeans Cost $300?” — fortunately the Wall Street Journal (July 7, 2011 – non-subscribers may have to click here) asked the same question. The article notes that costs are higher due to material costs and manufacturing — as well as the markups at wholesale and retail. There is also a nice graphic that lists all of the material, trim, labor and other costs. On top of that add the advertising costs — and relatively low sales volume.

This article might provide a nice addition to a discussion of branding, pricing, or manufacturing/costs (in Basic Marketing we cover marketing cost analysis and examine costs and production in our cross-functional chapter).

“How Panera Bread Kept Rising Through the Recession”

Joe Cannon — Thu, 02 Dec 2010 00:07:53 +0000

We have reported before on the interesting decisions Panera Bread made about price. This article, “How Panera Bread Kept Rising Through the Recession” (Bloomberg Businessweek, November 8, 2010) offers more insight on its strategy through an interview with the chain’s Executive Chairman, Ronald Schaich. By mostly staying the course with its marketing strategy, Panera was further differentiated as its competitors went on cost-cutting sprees. The example would fit with a discussion of competition, competitive advantage, service, and/or retailing.

How some companies are handling pricing in a time of rising costs and price sensitive customers

Joe Cannon — Sun, 31 Oct 2010 17:48:52 +0000

Many of us are covering pricing soon in our Principles classes. So it is nice to see a couple of recent Wall Street Journal articles that address timely pricing challenges. In “Dilemma Over Pricing,” (WSJ, October 21, 2010) rising commodity prices are pressuring profit margins at companies ranging from General Mills to Domino’s and Harley Davidson. Of course the economy has many cautious, price sensitive customers — so firms are treading carefully. In “Raising Prices Pays Off for Some,” (WSJ, October 27, 2010), you can read how a few small companies have raised prices in the current environment.

“Ryanair’s O’Leary: The Duke of Discomfort”

Joe Cannon — Sun, 12 Sep 2010 14:41:25 +0000

If you are not familiar with Ryanair’s low-cost business model, this article “Ryanair’s O’Leary: The Duke of Discomfort” (Bloomberg BusinessWeek, September 2, 2010) will bring you up to speed. The Ryanair example covers a lot of different concepts especially when teaching about costs, pricing, and service. Also posted at our Learn the 4 Ps blog.

“Evernote CEO Phil Libin’s 3 Steps to ‘Freemium’ Success”

Joe Cannon — Tue, 27 Jul 2010 00:23:56 +0000

We have a boxed teaching example on “freemium” in one of our pricing chapters. Freemium refers to “giving away service to users and making money when some opt to pay for additional features.” Evernote, a suite of software and services used for taking and storing notes, has used the freemium business model with great success. This Fast Company article, “Evernote CEO Phil Libin’s 3 Steps to ‘Freemium’ Success” (July 1, 2010) describes how it works with real number examples. [NOTE: This post is also featured at our companion blog for marketing students - "Learn the 4 Ps".]

“India’s Next Global Export: Innovation”

Joe Cannon — Tue, 05 Jan 2010 18:15:35 +0000

New products are important, but in these hard times many firms have cut new product development budgets. Now many firms are learning jugaad - and Indian approach to new product development that focuses on innovation at low costs. See “India’s Next Global Export: Innovation“” (BusinessWeek, December 2, 2009). This might help with discussions of NPD or in control and cost management.