Luxury goods can facilitate good discussions when talking about consumers and their buying behavior. If you’re looking for a current topic to use when talking with your students, consider the new Lamborghini Aventador SVJ. The new luxury sports car is faster and pricier ($518,000) than the base Aventador model. Only 900 of the new model will be produced which can add to the status achieved by owners of the car (and can further influence purchasing decisions). You might also use this in a discussion about segmentation or marketing strategy. Who would be the target market for this car? How can Lamborghini effectively target that market and what might their marketing mix look like?
Bloomberg’s short article/interview entitled “A Folding Bike Helmet That Looks Good and Still Shields Your Brain” shows inventors can still find room to innovate, even in a mature product market. Spanish inventor, Carlos Ferrando, created a bike helmet that has two unique features – it collapses/folds to reduce space when not in use, and it is designed to be more aesthetically appealing than the traditional bike helmet. Ferrando said he wants his helmet to “normalize the idea of wearing one (bike helmet) as a fashion accessory”.
Ask your students who they think the target market for this product would be. If they say “bicycle riders” push them to go deeper. It’s true that anyone who rides a bicycle could benefit from this product but a mass market strategy is unlikely to be as successful for a product like this. A segmented strategy has a better chance of success. In chapter 4 we offer a possible market segmentation for the bicycle-riders product-market. If students believe this product could effectively serve multiple segments you might want to break them into groups and have each group focus on a particular segment. Ask each group to develop a promotional strategy for their target market. After a few minutes have each group share their strategy and discuss the differences. If the students did a good job there should be distinct strategies for each market. If the strategies are generally similar then they’ve taken a “Combiner” approach which doesn’t really cater to the unique attributes of each segment. Either way, you have a good discussion!
It was hard to miss the story of Mylan’s pricing of the EpiPen as it played across the business news cycle for a couple of weeks in late August and early September 2016. Now that the dust has settled a bit, we will offer some perspective and ideas about how this might be used in a principles of marketing class.
The pricing of pharmaceutical drugs has unique challenges including long product development cycles (with most ending in failure), patent protection, sometimes life-saving qualities, and frequently paid for by insurance (for more, see the What’s New? box in Essentials of Marketing 15th edition, chapter 17).
Focusing on maximizing profits, companies can make a lot of money charging a high price for a drug that is on patent (or in this case has no adequate substitutes) and saves lives (that tends to reduce price sensitivity). On the other hand, high prices can bring in new competitors, or in this case attracts negative publicity and possibly increased regulation.
We have pulled together a few articles that you might read to understand this topic better. A Bloomberg Businessweek article, “The EpiPen Drama Shows What’s Wrong With How Drugs Are Priced” (September 1, 2016) provides a good overview of the issues and history. Among other things, it notes that when Mylan acquired marketing rights for EpiPen in 2007, a pair of the auto-injectors cost around $100. They now cost over $600. That is a big margin on a product estimated to cost about $20-30 each to produce. Most of the cost is for the auto-injection system as epinephrine “drug” that is delivered costs less than a dollar.
Another interesting teaching element of this case is how the profits are distributed along the long channel of distribution for the drug: Mylan gets $274, while “…your insurer keeps $249. The pharmacy benefits manager that negotiates between Mylan and your insurer gets $40. Your local pharmacist keeps $27. The wholesaler gets $10.” (NBC News, September 6, 2016). This raises questions about the efficiency and value provided by this channel of distribution. This suggests an opportunity to discuss EpiPen when you cover Place.
There is also an opportunity to explore some of Mylan’s promotion and targeting practices for EpiPen (see Bloomberg Businessweek, “How Marketing Turned the EpiPen Into a Billion-Dollar Business,” September 23, 2015). The company aggressively built the EpiPen brand name, started selling the delivery devices only in two-packs, and sought to have them stocked in schools and public places (including every room in Disney World hotels). With expiration dates, most of those EpiPens will go unused — and have to be replaced. What are the ethics here? And why do they cost less than $100 in Canada? The certainly raise issues that could be used when discussing Product as well as segmentation and targeting.
This case primarily deals with ethics and marketing strategy. It covers more than pricing — as profits from successful drugs are used to fund R&D for new drugs. Yet when some families have to decide between buying EpiPens and a month’s worth of groceries, important questions are raised. These are questions our students should wrestle with. We think that the case provides an opportunity to discuss a range of marketing issues in your class.
According to “Here’s how millennials could change health care” (USA Today, February 7, 2016) the health care needs of millennials differ from those of the generations that precede them (generation X. baby boomers, and senior citizens – see chapter 3 for discussion of different generations).
Review the influences on the consumer decision process in chapter 5 (see Exhibit 5-2). From reading the article or drawing on personal observations, identify how at least one factor in each category (economic needs, psychological variables, social influences, culture and ethnicity, and purchase situation) could influences how a millennial consumer choose and consumes health care.
Demographic data supports the notion that the rich keep getting richer; the top 1% of American households controlling more than 40% of the country’s wealth. That is up from less than 30% just 20 years ago. Luxury goods makers and service providers have responded to these changes. Many are segmenting the market and targeting the wealthiest “one percent” with exceptional quality and/or service. “In an Age of Privilege, Not Everyone Is in the Same Boat,” (New York Times, April 21, 2016) describes these trends and how it is playing out in the cruise business.
Using concepts from chapter 4, name the generic market and product-market Norwegian Cruise Lines serves with its Haven product. What dimensions do you think Norwegian Cruise Line uses to segment its market?