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<title>Pricing</title></titleStmt>

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<availability><p>The British Academic Spoken English (BASE) corpus was developed at the

Universities of Warwick and Reading, under the directorship of Hilary Nesi

(Centre for English Language Teacher Education, Warwick) and Paul Thompson

(Department of Applied Linguistics, Reading), with funding from BALEAP,

EURALEX, the British Academy and the Arts and Humanities Research Board. The

original recordings are held at the Universities of Warwick and Reading, and

at the Oxford Text Archive and may be consulted by bona fide researchers

upon written application to any of the holding bodies.

The BASE corpus is freely available to researchers who agree to the

following conditions:</p>

<p>1. The recordings and transcriptions should not be modified in any

way</p>

<p>2. The recordings and transcriptions should be used for research purposes

only; they should not be reproduced in teaching materials</p>

<p>3. The recordings and transcriptions should not be reproduced in full for

a wider audience/readership, although researchers are free to quote short

passages of text (up to 200 running words from any given speech event)</p>

<p>4. The corpus developers should be informed of all presentations or

publications arising from analysis of the corpus</p><p>

Researchers should acknowledge their use of the corpus using the following

form of words:

The recordings and transcriptions used in this study come from the British

Academic Spoken English (BASE) corpus, which was developed at the

Universities of Warwick and Reading under the directorship of Hilary Nesi

(Warwick) and Paul Thompson (Reading). Corpus development was assisted by

funding from the Universities of Warwick and Reading, BALEAP, EURALEX, the

British Academy and the Arts and Humanities Research Board. </p></availability>

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<u who="nm1192"><kinesic desc="overhead projector is on showing transparency" iterated="n"/> this is the first week of <pause dur="0.2"/> market analysis for this term and we're going into the marketing mix and the marketing mix comprises of <pause dur="0.2"/> pricing place promotion <pause dur="0.4"/> and product <pause dur="1.1"/> we're starting off with pricing issues <pause dur="5.0"/><kinesic desc="changes transparency" iterated="y" dur="5"/> how many of you have done accounting for finance courses before have done accounting courses <pause dur="2.0"/><kinesic desc="put hands up" iterated="n" n="ss"/> yeah <pause dur="0.2"/> good <pause dur="1.6"/> don't worry about it i'm not going to ask you complicated questions i'm not going to pick on you <pause dur="0.7"/> # <pause dur="0.5"/> it doesn't the first of the the methods that we're going to talk about in terms of pricing is cost oriented pricing <pause dur="1.1"/> and it's the most obvious in a sense because it means that when you want to <pause dur="1.0"/> launch something into the market when you want to price something <pause dur="0.3"/> you start off by working out what it costs <pause dur="1.6"/> two methods both the variable costs <pause dur="0.2"/> so only those that are used by the product itself in making it labour materials and so on <pause dur="1.8"/> and the

second choice which is why i asked if anyone had done accounting and finances course <pause dur="0.3"/> is the full cost method where you would actually absorb in the <pause dur="0.4"/> overheads <pause dur="0.2"/> and allocate the proportion of overheads to the product as well <pause dur="1.2"/> whichever of the methods of costing you use <pause dur="2.6"/> the marketers would say that there's a disadvantage to this method of pricing <pause dur="0.7"/> that is you start off <pause dur="0.3"/> working out that you need to <pause dur="0.4"/> cover your costs and maybe that you want to get a ten to fifteen or twenty per cent whatever margin out of the product <pause dur="0.5"/> but you don't take into account anything to do with the market itself what people are prepared to pay so you're starting off purely from the firm's point of view <pause dur="0.4"/> saying well we've got this product <pause dur="0.4"/> and we want to decide <pause dur="0.3"/> how we make a sufficient profit out of it <pause dur="0.9"/> and it's the equivalent really of the <pause dur="0.5"/> production oriented or the product oriented approach to marketing where we're saying the disadvantage of that is maybe you launch a product that's very

clever <pause dur="0.7"/> # did you hear the example last term of Kevlar <pause dur="0.2"/> DuPont <pause dur="0.4"/> Kevlar was this incredibly clever fabric that was going to follow on from from Nylon and it was <pause dur="0.3"/> it's light and it's very strong and it's all of these other <unclear>fine</unclear> things <pause dur="0.4"/> and they invented it <pause dur="0.2"/> but they didn't have any idea what they were going to do with it <pause dur="0.6"/> and nobody in the market could actually find an application for Kevlar <pause dur="0.3"/> for so it was about <pause dur="0.4"/> several years after it had actually been invented <pause dur="0.4"/> that finally it started being used for things it's now used for a whole range of things bulletproof vests skateboards crash helmets boats <pause dur="0.9"/> so eventually it did find a a a gap in the market and it actually offered a benefit but when it was originally invented it was a classic product oriented thing that <pause dur="0.5"/> very clever <pause dur="0.6"/> but it may well not have succeeded <pause dur="0.6"/> now <pause dur="0.2"/> the cost oriented pricing method is is basically # the equivalent you start off saying i've got this product i have to decide what to price it at <pause dur="0.4"/> well if it was Kevlar you'd be saying we need to work

out how much we've spent on developing it <pause dur="0.3"/> we need to know how much it costs to make it </u><gap reason="break in recording" extent="uncertain"/> <u who="nm1192" trans="pause"> so the markets would say the problem with this is that it's a classic supply <pause dur="0.2"/> side kind of way of pricing your products <pause dur="0.8"/> and the dangers of it are that <pause dur="0.2"/> you may actually sort of think that the market is going to not want to pay more for your product but actually <pause dur="0.6"/> you misunderstand the nature of the demand or <pause dur="0.2"/> you work out <pause dur="0.4"/> exactly what your costs would be and what margin you want and you put it into the market and it's so expensive that nobody actually buys it <pause dur="0.3"/> and you don't know whether it's the product or service that isn't valued by the market or whether the pricing is just wrong for it <pause dur="1.8"/> so <pause dur="0.4"/> we move towards methods where you actually take into account what's going on outside the firm <pause dur="0.6"/> and

the first of those is <trunc>com</trunc> <pause dur="0.3"/> competition oriented pricing <pause dur="1.0"/> and what you would do there is look at comparable products that your competitors have in the market and say well what's their pricing <pause dur="0.8"/> and are we aiming to be <pause dur="1.3"/> at about the same rate <pause dur="0.2"/> or are we going to be at a premium above our competitors or are we trying to undercut our competitors and there may be a range of reasons why you would do that <pause dur="1.8"/><kinesic desc="changes transparency" iterated="y" dur="5"/> so if cost plus pricing <pause dur="1.1"/> is <pause dur="1.4"/> saying that you've got a cost and you want to charge a margin <pause dur="0.6"/> over and above that <pause dur="2.5"/><kinesic desc="changes transparency" iterated="y" dur="3"/> competition based pricing <pause dur="4.1"/> says that if i've got product <pause dur="0.3"/> A <pause dur="0.5"/> if i'm going to launch a new mobile phone into the market <pause dur="0.9"/> and it's already a competitive market and there's lots of different people out there <pause dur="0.3"/> charging X <pause dur="0.5"/> price per minute <pause dur="0.2"/> charging whatever rental for the phones </u> <gap reason="break in recording" extent="uncertain"/> <u who="nm1192" trans="pause"> then i have to make some basic choices about what my strategy is and this is where marketing mix <pause dur="0.2"/> links back to things that you've already talked about <pause dur="0.4"/>

so when you launch a new product when you're looking at your strategy for the market <pause dur="0.3"/> you have to decide <pause dur="1.3"/> what kind of objectives you have and that will largely determine your pricing strategy <pause dur="1.5"/> if <pause dur="0.7"/> you want for example to penetrate the market so you want to offer additional benefits <pause dur="2.3"/> over and above your competitors <pause dur="0.4"/> if you charge the same price as them for these additional benefits the likelihood is that you will actually gain a fairly high market share you will penetrate the market <pause dur="2.7"/> if you're very aggressive about your pricing and you really want to penetrate the market for whatever reason maybe you want to tie up the best distribution channels <pause dur="0.9"/> maybe you want to get your brand known in the market <pause dur="0.5"/> then you have the choice of undercutting <pause dur="0.3"/> the competition <pause dur="1.6"/> what's the danger of undercutting the competition </u><pause dur="1.7"/> <u who="sm1193" trans="pause"> you're starting a price war </u><u who="nm1192" trans="latching"> yeah <pause dur="0.5"/> and nobody ends up winning <pause dur="0.6"/> not so many years ago <pause dur="1.0"/> about five or six years ago i was talking to some of the banks <pause dur="0.5"/> and they were saying that in that market <pause dur="0.4"/>

the only basis on which you could compete was on cost <pause dur="0.2"/> so the only thing you could do was to to cut out your bank charges <pause dur="0.3"/> or to lower your rate of interest <pause dur="0.3"/> or to improve the # interest that <pause dur="0.2"/> savers were going to get on their savings it was all to do with price <pause dur="0.4"/> and they all felt that to gain business from their competitors in that mature market they had to undercut the competition <pause dur="0.7"/> the danger of that was that people then begin to <trunc>lo</trunc> perceive that the price should be lower and lower and lower for that type of service </u><gap reason="break in recording" extent="uncertain"/> <u who="nm1192" trans="pause"> the danger if you undercut the competition <pause dur="0.4"/> is that you devalue what you're actually offering into the market <pause dur="0.3"/> and this was exactly what happened with holidays a few years back <pause dur="0.5"/> we would have looked at the brochure

and worked out <pause dur="0.2"/> what kind of holiday we wanted what kind of destination we wanted what kind of budget we were on <pause dur="0.2"/> were we looking for <pause dur="0.5"/> upmarket tailor-made <pause dur="0.2"/> cheap and cheerful holidays <pause dur="0.8"/> but then we all got into the fact that you could actually get holidays cheaper <pause dur="0.6"/> and the reason why you were getting holidays cheaper is that they were actually selling their late availability holidays <pause dur="0.4"/> so the last minute holiday firms had had seats left on planes or <pause dur="0.3"/> hotel rooms vacant <pause dur="0.3"/> would reduce the price of those holidays <pause dur="0.6"/> and after a while <pause dur="0.7"/> once everybody began to know that you could get cheap holidays at the last minute <pause dur="0.7"/><vocal desc="cough" iterated="n"/><pause dur="0.2"/> we stopped paying full price <pause dur="1.0"/> we all started thinking that was about the price that you ought to pay for a holiday <pause dur="0.5"/> and we didn't book ahead <pause dur="1.0"/> and the firms <pause dur="0.3"/> found themselves getting less and less margin out of those holidays even those people who would have booked early started switching their behaviour <pause dur="0.9"/> so the

danger of undercutting <pause dur="0.3"/> is that you set up a price war and nobody in terms of the firm the customer way may win because they get some bargains but from the firm's side nobody wins <pause dur="1.8"/> the alternative of course is if you really believe <pause dur="0.2"/> in the <pause dur="0.2"/> the benefits that your product provides <pause dur="0.9"/> that you should actually be charging premium for those benefits <pause dur="0.4"/> and so the third <pause dur="0.7"/> rate of pricing that that we talked about there <pause dur="7.3"/><kinesic desc="changes transparency" iterated="y" dur="8"/> is market oriented pricing <pause dur="0.7"/> and market oriented pricing is in a sense the opposite <pause dur="0.2"/> of cost oriented <pause dur="0.2"/> so rather than starting from the firm and looking out at the market and saying <pause dur="0.4"/> what price do we want to charge <pause dur="0.3"/> it's looking at the customers <pause dur="0.8"/> going right back to your marketing strategy and saying well what benefits do we offer <pause dur="0.7"/> and what do we think the price of those benefits should be to the market so what's the value of those things that we actually <pause dur="0.6"/> have designed into this product or service <pause dur="1.0"/> i'm going to give you an example of that <pause dur="1.3"/> the example <pause dur="0.9"/> has anybody

done the John Deere case study <pause dur="1.4"/> no <pause dur="2.5"/><kinesic desc="changes transparency" iterated="y" dur="3"/> the example is to do with bulldozers <pause dur="2.7"/> John Deere bulldozers <pause dur="1.3"/> they wanted to launch their bulldozers John Deere were actually operating in the small bulldozer market that is less than a hundred horsepower <pause dur="0.4"/> and in the over a hundred horsepower they were up against some very strong competition they were up against people like Caterpillar <pause dur="0.8"/> they were up against people like Kamatsu <pause dur="1.2"/> and they wanted to launch into this market because basically they felt that they had as higher market share in the small bulldozer market as they could gain <pause dur="1.7"/> what they actually did was design a new product <pause dur="0.4"/> because they were in the smaller machine market they'd actually got very good at getting <pause dur="0.2"/> flexible manoeuvrable machines <pause dur="0.5"/> and when they went into the larger market they designed one <pause dur="0.9"/> that had a tighter <trunc>t</trunc> turning circle the tighter turning circle <pause dur="0.6"/> the tighter turning circle meant that you could gain ten to fifteen per cent productivity <pause dur="0.2"/> out of this machine <pause dur="1.6"/> suppose you were just better

at picking things up and and and doing the job so it's ten to fifteen per cent <pause dur="0.4"/> increase in productivity <pause dur="1.7"/> when they had to <pause dur="0.2"/> launch into the market they had a pricing decision to make <pause dur="0.8"/> they could go in <pause dur="0.5"/> at the same price as Caterpillar <pause dur="0.3"/> Caterpillar were well established in the market <pause dur="0.3"/> they had strong distribution <pause dur="0.5"/> they had a good <unclear><trunc>ca</trunc> also</unclear> spares <pause dur="0.5"/> network service <pause dur="0.6"/> and bear in mind if you're working on a large construction project you don't want your machine to break down so if you're building a <pause dur="1.0"/> a road or if you <pause dur="0.2"/> you're involved in some kind of building project <pause dur="0.3"/> you may well have penalty clauses if you don't deliver on time <pause dur="0.8"/> it's going to be very important to you that you actually have a reliable machine <pause dur="0.5"/> so Caterpillar had all of that established in the big bulldozer market <pause dur="1.7"/> John Deere <pause dur="0.3"/> were operating in a market that that was quite different the type of people using the machines was different there were jobbing builders there were they were one man <pause dur="0.6"/> building firms <pause dur="0.2"/> so quite often the person buying the

machine for John Deere would be the person who was going to use it <pause dur="0.4"/> with the Caterpillar machines quite often there was a large project team involved <pause dur="0.3"/> it'd be a larger decision there'd be a whole team of people involved maybe one person <pause dur="0.4"/> deciding what ought to be commissioned one person doing the purchasing somebody else being the user <pause dur="1.9"/> so there's a whole series of things tied up in that not just what price <pause dur="0.2"/> John Deere should charge <pause dur="1.5"/> if you ask <pause dur="0.9"/> what price they should charge for the ten to fifteen per cent increase in productivity is there anybody who believes that they should charge less than Caterpillar <pause dur="1.7"/> and if so why <pause dur="4.5"/> no <pause dur="1.2"/> yes </u><pause dur="0.3"/> <u who="sm1194" trans="pause"> # i think they should because <pause dur="0.2"/> <gap reason="inaudible" extent="2 secs"/> established than Caterpillar <pause dur="0.6"/> <gap reason="inaudible" extent="1 sec"/> </u><pause dur="0.3"/> <u who="nm1192" trans="pause"> okay <pause dur="0.2"/> yeah so there is a logic that says <pause dur="1.2"/> if you go in at less than Caterpillar <pause dur="0.3"/> it's possible that people in that market will buy your machine now <pause dur="0.3"/> otherwise they may say why should i switch from Caterpillar i'm quite happy with them <pause dur="1.2"/> can anybody see any <pause dur="0.5"/> issues with charging less

than Caterpillar <pause dur="0.4"/> yeah </u><u who="sm1195" trans="latching"> they might just think that they're cheap and <pause dur="0.2"/> might <pause dur="0.3"/> be <pause dur="0.3"/> unreliable therefore <vocal desc="laughter" iterated="y" dur="1"/> </u><u who="nm1192" trans="overlap"> yeah <pause dur="0.2"/> so <pause dur="0.3"/> there's a price quality relationship in people's minds quite often where you say <pause dur="0.2"/> why is it cheap i mean we're all sort of <pause dur="0.8"/> suspicious characters and quite often if you see something and it looks too good you think there's got to be a catch what's wrong with it <pause dur="1.0"/> now if they're going out saying there's a ten to fifteen per cent increase in productivity <pause dur="0.4"/> and they're going to charge less then Caterpillar <pause dur="0.3"/> what would you think about the ten to fifteen per cent increase in productivity <pause dur="2.4"/> yeah </u><u who="sm1196" trans="latching"> ten to fifteen per cent decrease in reliability <unclear>though</unclear> </u><pause dur="0.3"/> <u who="nm1192" trans="pause"> yeah you'd say well <pause dur="0.4"/> <trunc>th</trunc> <pause dur="0.2"/> can they really deliver that if they could really deliver that why would they be charging less than Caterpillar so <pause dur="0.4"/> you might be doing it for very strategic reasons but there are other issues to take into account one of which is price quality <pause dur="0.9"/> how about charging the same price <pause dur="0.3"/> as Caterpillar <pause dur="4.5"/> what do you think the market would think to that <pause dur="9.7"/><kinesic desc="raises eyebrows" iterated="n"/> any

offers </u><pause dur="1.1"/> <u who="sm1197" trans="pause"> # they'd think it was better value </u><pause dur="0.8"/> <u who="nm1192" trans="pause"> they would <trunc>th</trunc> </u><pause dur="0.2"/> <u who="sm1197" trans="pause"> just think it's a better value <gap reason="inaudible" extent="1 sec"/></u><u who="nm1192" trans="overlap"> yes so that could really work because if you've got your ten to fifteen per cent increase in productivity <pause dur="3.0"/> and you go in at the same price as Caterpillar <pause dur="0.2"/> the market would say <pause dur="0.4"/> could say assuming they believe in this ten to fifteen per cent increase in productivity <pause dur="0.5"/> well that's actually very good value <pause dur="0.6"/> now you might actually not have quite the same <pause dur="0.3"/> drawbacks as you would have if you charge less than Caterpillar because people <pause dur="0.3"/> wouldn't be quite as suspicious they'd say well <pause dur="0.6"/> they're not charging less than Caterpillar they're charging the same price that would seem like a reasonable thing to do <pause dur="1.2"/> why do you think <pause dur="0.6"/> John Deere might decide to do that <pause dur="3.4"/> and it comes back to the point <kinesic desc="indicates member of audience" iterated="n"/> that you've just made <kinesic desc="raises eyebrows" iterated="n"/> </u><pause dur="6.5"/> <u who="sm1198" trans="pause"> it's less of a decision between Caterpillar and John Deere <gap reason="inaudible" extent="1 sec"/> </u><u who="nm1192" trans="latching"> yeah <pause dur="0.6"/> see otherwise <pause dur="1.2"/> in this particular case John Deere are asking the buyers to <pause dur="0.2"/> take a lot on faith aren't they i mean they can take

their bulldozer to <pause dur="0.2"/> i don't know <pause dur="0.4"/> whatever bulldozer exhibition and maybe they can demonstrate this increase in productivity they can come up with technical specifications <pause dur="0.6"/> and try to show those to their customers to say look <pause dur="0.2"/> we really can deliver this <pause dur="0.5"/> but to a a a set of buyers who are actually happy with Caterpillar who are concerned about reliability <pause dur="0.6"/> they've got to persuade them somehow to take the risk <pause dur="0.3"/> and buy their machine <pause dur="0.5"/> and if they are <pause dur="0.3"/> not offering <pause dur="0.4"/> a benefit over and above Caterpillar <pause dur="0.4"/> maybe the <pause dur="0.2"/> the buyers will not be convinced and not <pause dur="0.3"/> switch from <pause dur="0.2"/> their Caterpillar machine to John Deere <pause dur="1.6"/> what's the maximum price they could charge </u><pause dur="10.3"/> <u who="sm1199" trans="pause"> <gap reason="inaudible" extent="1 sec"/> market </u><pause dur="0.3"/> <u who="nm1192" trans="pause"> yes <pause dur="1.6"/> market oriented pricing would say that the maximum you can charge is ten to fifteen per cent more than Caterpillar so ten to fifteen per cent <pause dur="0.2"/> you'd have to calculate what that is <pause dur="0.3"/> what a ten to fifteen per cent <pause dur="0.5"/> increase in productivity <pause dur="0.2"/> would mean <pause dur="0.9"/> and you could work it out if you had the figures for <pause dur="0.4"/>

labour and and the basic <pause dur="0.2"/> the the purchase price of the machine <pause dur="0.5"/> the raw materials the spares that you've saved the labour costs and all of the other things that you would factor in <pause dur="0.2"/> you can work out <pause dur="0.4"/> what you save by a ten to fifteen per cent increased productivity <pause dur="0.6"/> ten to fifteen per cent <pause dur="0.3"/> more out of that machine over its lifetime <pause dur="0.5"/> and that would be the maximum price that you could <pause dur="0.3"/> charge <pause dur="0.8"/> and basically that ten to fifteen per cent more <pause dur="3.7"/><kinesic desc="changes transparency" iterated="y" dur="4"/> that's basically what we mean by market oriented pricing <pause dur="0.6"/> there's a <pause dur="0.3"/> a method of <pause dur="0.2"/> of calculation of prices the third method <pause dur="0.3"/> which is called economic value to the customer <pause dur="1.9"/> and rather than just <pause dur="0.4"/> say we're we are satisfying a set of needs and wants in the market <pause dur="0.6"/> you actually work out <pause dur="0.6"/> what the <pause dur="0.2"/> the price should be <pause dur="0.3"/> if you were offering <pause dur="0.4"/> those benefits over and above the price of your competition <pause dur="0.3"/> so you start off by benchmarking with the competition <pause dur="1.3"/> you take into account <pause dur="0.2"/> hopefully <pause dur="0.3"/> the strategic things about how will the market perceive you if you are cheaper <pause dur="0.3"/> if you're more expensive <pause dur="0.3"/> than

your competition <pause dur="0.5"/> but you can work out what benefits you might be offering over and above the competition <pause dur="2.4"/><kinesic desc="changes transparency" iterated="y" dur="5"/> market oriented pricing <pause dur="3.0"/> therefore there's a whole series of things you would need to take into account some of which you've already brought out of John Deere <pause dur="1.0"/> first thing you'd have to have your marketing strategy <pause dur="1.0"/> now <pause dur="2.6"/> if you look at the car market <pause dur="2.5"/> and start off by saying what price can you charge for your product <pause dur="1.6"/> what would happen <pause dur="0.9"/> if you had Skoda quality <pause dur="0.6"/> and you charged Lexus prices </u><pause dur="7.2"/> <u who="sm1200" trans="pause"> no one would buy it </u><pause dur="0.4"/> <u who="nm1192" trans="pause"> nobody would buy it <pause dur="0.2"/> yeah <pause dur="0.7"/> what would happen if you had <pause dur="0.5"/> # <pause dur="1.2"/> Lexus quality and you charged Skoda prices </u><pause dur="0.4"/> <u who="sf1201" trans="pause"> sell out <gap reason="inaudible" extent="1 sec"/></u><u who="nm1192" trans="overlap"> you'd sell out on the first day <pause dur="0.6"/> # what would you be doing to your company profits <pause dur="1.8"/> selling for far less than you you would need to <pause dur="0.5"/> i mean that's an extreme example but basically <pause dur="0.2"/> what we're trying to get to is the fact that <pause dur="0.6"/> the price that you can charge the market <pause dur="0.4"/> has to relate <pause dur="0.2"/> to the type of product <pause dur="0.4"/> the features that you're offering the quality that you're offering <pause dur="1.6"/>

what quite of distribution you're selling it to all those other factors so you can't just <trunc>sa</trunc> decide your price in isolation <pause dur="0.3"/> that's what's wrong with cost oriented pricing that we saw at the <pause dur="0.2"/> beginning of course <pause dur="0.3"/> you almost always will want to cover your costs <pause dur="0.3"/> unless for some particularly strategic reason you want to get into a market fast <pause dur="0.3"/> and build a position <pause dur="0.3"/> and then you believe that you can put the prices up from there <pause dur="1.6"/> how easy is it to put your prices up once you've actually got into a market <kinesic desc="raises eyebrows" iterated="n"/> </u><pause dur="1.0"/> <u who="sf1207" trans="pause"> very difficult </u><pause dur="0.2"/> <u who="nm1192" trans="pause"> very difficult so that's what happened in the holiday example that we talked about earlier <pause dur="0.3"/> once the market accepts <pause dur="0.4"/> that <pause dur="0.5"/> and basically price quality once the market accepts that you would normally pay two to three-hundred pounds for a <pause dur="0.7"/> couple of weeks' holiday <pause dur="0.5"/> in <pause dur="0.2"/> Tenerife or wherever <pause dur="1.0"/> it's very difficult to go back and say well actually you used to pay four to five-hundred pounds <pause dur="0.2"/> and i want to charge you that now <pause dur="0.3"/> because the market's going to think well i'm getting the same thing i used to <pause dur="0.4"/>

pay less for it why would i pay more <pause dur="0.5"/> and they're going to be very unhappy about that <pause dur="2.4"/> so you've got to look at your marketing strategy and relate to that <pause dur="1.2"/> but just before we we move on <pause dur="0.7"/> there's an interesting one what does a a mobile phone cost <pause dur="3.8"/><kinesic desc="raises eyebrows" iterated="n"/> has anybody got a mobile phone here <pause dur="2.6"/><kinesic desc="raises eyebrows" iterated="n"/> you're all going to deny it yes <pause dur="0.7"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> i haven't got mine with me or i'd use it as an <vocal desc="laughter" iterated="y" n="ss" dur="1"/> example <pause dur="1.3"/> what does a mobile phone cost <pause dur="0.5"/> the actual handset </u><u who="sm1202" trans="overlap"> the phone itself costs ten <trunc>pou</trunc> well </u><pause dur="0.5"/> <u who="nm1192" trans="pause"> ten </u><u who="sm1202" trans="overlap"> costs ten pounds but it costs three-hundred pounds to insure it <vocal desc="laughter" iterated="y" dur="1"/></u><u who="nm1192" trans="overlap"> yeah <pause dur="0.6"/> yes <pause dur="0.6"/> so this is the the thing about it i say that you would almost always want to cover your costs <pause dur="0.4"/> when you get into a market <pause dur="0.2"/> but mobile phones is one of the exceptions <pause dur="0.9"/> sometimes you'd pay ten pounds for the handset sometimes you wouldn't pay anything at all <pause dur="0.6"/> but as we're rightly saying there <pause dur="0.2"/> the actual cost of it what it costs the firm to make is something like three-hundred pounds <pause dur="0.6"/> why then would they charge you ten pounds or nothing at all for it </u><pause dur="1.9"/> <u who="sf1203" trans="pause"> contract </u><pause dur="1.4"/> <u who="nm1192" trans="pause"> and what about the contract </u><pause dur="0.4"/> <u who="sf1203" trans="pause"> it's binding and it has to be <pause dur="0.2"/> <gap reason="inaudible" extent="1 sec"/></u><pause dur="0.3"/> <u who="nm1192" trans="pause"> yeah </u><pause dur="0.6"/> <u who="sf1203" trans="pause"> <gap reason="inaudible" extent="1 sec"/> </u><pause dur="0.8"/> <u who="nm1192" trans="pause"> and why if you've got to be a customer for a year <pause dur="0.6"/> why is

that important in terms of price </u><pause dur="1.3"/> <u who="sf1203" trans="pause"> i think that it keeps up <pause dur="0.3"/> with the consistent<gap reason="inaudible" extent="2 secs"/> </u><pause dur="1.1"/> <u who="nm1192" trans="pause"> so what they assume is that the the # the problem for them is getting people into the market is getting people to have a mobile phone if you <pause dur="0.4"/> either are contracted in <pause dur="0.4"/> or you're going to use a certain number of minutes over the year what they're assuming is that you're they're actually going to get their money back <pause dur="0.4"/> over the lifetime of the phone from the from the airtime <pause dur="0.4"/> and the contract and the various other things that they actually have with you <pause dur="1.5"/> does anybody <pause dur="1.0"/> maybe you're not old enough i'm certainly old enough <pause dur="0.2"/> <shift feature="voice" new="laugh"/>when the mobile phone market <shift feature="voice" new="normal"/>in the U-K started off <pause dur="0.4"/> does anybody know what what handsets were were priced at to the customer then </u><pause dur="1.8"/> <u who="sm1204" trans="pause"> it was in thousands wasn't it </u><pause dur="0.3"/> <u who="nm1192" trans="pause"> sorry </u><pause dur="0.4"/> <u who="sm1204" trans="pause"> it was in thousands wasn't it </u><pause dur="0.6"/> <u who="nm1192" trans="pause"> it was in thousands but that was in the the the very early days my father-in-law had a mobile phone <kinesic desc="demonstrates carrying heavy object" iterated="n"/> that was like you know <pause dur="0.5"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> mobile phone <pause dur="0.2"/> and <pause dur="0.2"/> we once borrowed this thing it was like a suitcase <pause dur="0.5"/> # <pause dur="0.3"/> and and took it with us and the and the only time it was actually useful to us was go to was to go to the lakes the was the north-west of England and it's

actually sort of <pause dur="0.2"/> reasonably mountainous <pause dur="0.3"/> so we took this thing thinking this'll be really useful and of course <pause dur="0.4"/> no chance of getting it to work because we just couldn't get a signal in fact you couldn't get a signal with it in virtually all of the country <pause dur="0.6"/> one of the things used to be actually getting <pause dur="0.4"/> getting the signal on analogue phones was not good news <pause dur="0.4"/> when the digital handsets first came into the market <pause dur="0.3"/> for consumer use which is relatively recently <pause dur="0.6"/> they were actually priced to the customer at around three-hundred pounds <pause dur="1.7"/> and what happened <pause dur="5.2"/> nobody bought them <pause dur="1.2"/> because <pause dur="0.6"/> people had had analogue phones and people by and large were reasonable happy with analogue digital came along <pause dur="0.3"/> and it's a bit like digital T-V now <pause dur="0.5"/> they were trying to get people into the market and people were looking at the prices saying well <pause dur="0.2"/> would i use it <pause dur="0.3"/> and the classic thing with mobile phones <pause dur="0.2"/> and i am a classical case of a mobile phone user <pause dur="0.4"/> 'cause i got my mobile phone <pause dur="0.4"/> for emergencies only <pause dur="1.0"/><kinesic desc="raises eyebrows" iterated="n"/> and

most of their customers say that to them well i don't i'm not sure i really need one but i'll get it for emergencies <pause dur="0.2"/> and i won't dial out on it much but i've got this certain number of free minutes you see and <pause dur="0.6"/> # i'll only use the free minutes <pause dur="0.2"/> and if the car breaks down or i'm going to be late or what i'll be able to ring people <pause dur="0.5"/> and then you start exceeding your free minutes <pause dur="0.8"/> and you realize it's not as expensive per minute as you thought it maybe was and then you use it more and more and more <pause dur="0.4"/> and it's a life cycle <pause dur="0.3"/> they want to get people in at the beginning because <pause dur="0.2"/> once you get into using your phones <pause dur="0.9"/> they actually make the money back <pause dur="1.5"/> have you seen the recent Orange <pause dur="0.2"/> advertising in the U-K <pause dur="1.6"/> i know there are <trunc>inter</trunc> international calls and whatever else what was what was the advertising before that <pause dur="2.2"/> can anybody remember the Orange community <pause dur="1.1"/> they had teams of rowing teams and they had families and whatever else because the latest thing that they're saying is <pause dur="0.4"/> in order if if the money comes out of the

airtime <pause dur="0.7"/> what they want you to do now is is to have more handsets <pause dur="0.5"/> so don't just want you to have one they want you to have a whole set of them and then you're going to ring each other on your your phones and <pause dur="0.5"/> various other things you're going to give them <pause dur="0.2"/> # this is a great one to try on your parents the they they're going to give them to your teenage children who go off to university <pause dur="0.9"/><kinesic desc="raises eyebrows" iterated="n"/> because it's cheaper than than getting people to use unreliable callboxes and and <pause dur="0.3"/> whatever <pause dur="0.3"/> and you can get a card and you put a certain number of minutes on it <pause dur="1.0"/> for a member of your family or or whatever to use their phone <pause dur="0.3"/> so there are all kinds of things that they're doing now to to lock people into those contracts <pause dur="2.1"/> you know what the most irritating thing is for the mobile phone providers <pause dur="0.4"/><kinesic desc="raises eyebrows" iterated="n"/> given that they're giving you this three-hundred pound phone for ten pounds <pause dur="1.4"/> and i think when you said insurance you've probably got it <pause dur="0.6"/> # <pause dur="1.1"/> people because they <pause dur="0.5"/> assume it only to be worth ten pounds or nothing at all <pause dur="0.4"/> don't take care of their mobile phones

i'm a classic case i haven't got a case for it yet i've always intended to have one it's it's covered in bits of Blu-tak <pause dur="0.6"/> you know bits of pen and things being in the bottom of the bag <pause dur="0.5"/> # <pause dur="0.5"/> people return them to their insurance departments <pause dur="0.4"/> with all kinds of ridiculous thing you know oh the kid's dropped it in the bath <pause dur="0.6"/> # <vocal desc="laughter" iterated="y" n="ss" dur="1"/> i spilt a can of Coke on it <pause dur="0.4"/> and one of the the classic ones that they've got someone who'd driven a nail into the top of their mobile phone trying to improve the reception on it <pause dur="1.7"/><vocal desc="laughter" iterated="y" n="ss" dur="2"/><kinesic desc="raises eyebrows" iterated="n"/> they were surprised that it didn't work after that <pause dur="1.2"/> so <pause dur="2.0"/> you have a marketing strategy which dictates what kind of price range you're going to be looking at and it <trunc>c</trunc> of course it relates back to your position and your features your quality and all of those other things <pause dur="1.9"/> there is a price quality relationship that you've got to take into account <pause dur="1.3"/> it's quite possible to <trunc>pra</trunc> to charge too little <pause dur="0.3"/> for a product as much as it's possible to charge too much <pause dur="0.6"/> because sometimes if you go into a market with something as we've

said if you went in with your John Deere bulldozer <pause dur="0.4"/> and you charged less than the competition <pause dur="0.3"/> you might be asking people to to sort of <pause dur="0.7"/> not to trust in the value of your product in a way <pause dur="0.5"/> that you believe that it must be <pause dur="0.3"/> you know very good quality <pause dur="0.3"/> because you're paying a higher price <pause dur="1.4"/> you know that one of the classic cases of that to me <pause dur="0.5"/> is # <pause dur="0.4"/> we had a <pause dur="0.5"/> a carpenter come round the other day now we wanted a cupboard for our bathroom <pause dur="0.3"/> and we want it to fit a gap about <kinesic desc="indicates size with hands" iterated="n"/> this big and <pause dur="0.3"/> there is no pine <pause dur="0.9"/> chest of drawers that fits into that kind of space <pause dur="0.7"/> and so you go off to M-F-I or IKEA or whatever else you look at the size they're all about the same they're all about sort of twenty-something inches <pause dur="1.1"/> no way does it fit into the gap <pause dur="0.5"/> and eventually <pause dur="0.6"/> having looked in all the expensive shops for something tailor-made having looked at antiques having looked at all kinds <pause dur="0.4"/> we found somebody advertising in the Yellow Pages and he makes furniture <pause dur="0.7"/> and he brought us this catalogue of

of beautiful <pause dur="0.2"/> chests that he'd made of things exactly to your requirements tailor-made <pause dur="0.3"/> he'd build it from scratch <pause dur="0.9"/> and then we asked him how much <pause dur="0.3"/> it was going to be for this chest of drawers <pause dur="0.3"/> and he was going to charge us <pause dur="0.3"/> something like # i don't know what his rate was ten pounds per hour for making this plus materials <pause dur="0.5"/> and if you worked out even though it's going to take him a few days to make <pause dur="0.4"/> it was going to be less than buying flat-pack furniture from IKEA or M-F-I or or wherever <pause dur="0.3"/> to get this <pause dur="0.3"/> tailor-made cupboard <pause dur="0.6"/> built much better than you would get from any of the the furniture <pause dur="0.4"/> <unclear>wholesalers</unclear> so he's <pause dur="0.3"/> taking a cost plus <pause dur="0.3"/> pricing method there he's working out what his time is he's working out his materials <pause dur="0.5"/> he's one of these incredibly honest characters who's going to charge us like <pause dur="0.3"/> thirty-something pence <pause dur="0.3"/> # for a <pause dur="0.2"/> for a a box of nails when you say well you know i'm not going to know it's thirty-seven-P if you charge me a pound or two pounds or whatever else <pause dur="0.5"/><kinesic desc="shrugs shoulders" iterated="n"/> probably not

going to notice <pause dur="0.3"/> but he's going to charge you exactly what his labours are <pause dur="0.4"/> and that that's you know very honest of him but you feel like saying look <pause dur="0.2"/> <trunc>ta</trunc> take a take a pricing lecture <pause dur="0.3"/> and say <vocal desc="laughter" iterated="y" n="ss" dur="2"/>it's economic value to the customer <pause dur="0.2"/> i can't go out and buy this <pause dur="0.7"/> i can't buy it from IKEA or M-F-I at whatever price <pause dur="0.3"/> i've even looked in the expensive shops <pause dur="0.5"/> i you know five six seven up to a thousand pounds <pause dur="1.3"/> and you're going to charge me a hundred-and-fifty-pounds <pause dur="0.9"/> # <pause dur="0.2"/> sometimes the price sensitivity of the customer or the value that they're actually getting <pause dur="0.5"/> is much higher than the person is taking into account and that's one of the limitations of cost oriented pricing <pause dur="0.8"/> you can end up underpricing your services to the marketing or undervaluing what you actually have to offer <pause dur="1.0"/> of course you can also overvalue <pause dur="1.0"/> if you're John Deere and you say we've got a ten to fifteen per cent <pause dur="0.5"/> # <pause dur="0.2"/> advantage over the competition <pause dur="0.6"/> the competition has to be prepared to pay that <pause dur="0.5"/> and the problem that John Deere actually faced <pause dur="0.3"/> was they

went at the higher end of the pricing range because of their ten to fifteen per cent increase in productivity <pause dur="0.5"/> and the market <pause dur="0.6"/> didn't really want to switch because they didn't fully believe that they could deliver that well what if the machine doesn't give us ten to fifteen per cent increase in productivity <pause dur="0.3"/> and we've switched away from Caterpillar <pause dur="0.8"/> and we've got to get the spares and will it be reliable and it <pause dur="0.5"/> how professional are their small # service units going to be and so on <pause dur="1.7"/> there's value to the customer competition as we've said <pause dur="1.3"/> the signal to the market in terms of your price quality and your value are very much tied in to <pause dur="0.6"/> the competition price <pause dur="0.5"/> if you're charging a premium <pause dur="0.3"/> over the competition you've got to be offering superior value <pause dur="1.5"/> if you're undercutting the competition <pause dur="0.9"/> well maybe you're doing that because you're offering less value <pause dur="0.3"/> or maybe you're doing it for some kind of strategic reason if you can persuade the customer <pause dur="0.3"/> that the value is there <pause dur="0.4"/> and the quality is

there but you're charging less <pause dur="0.3"/> then you can stand a very good chance of achieving the objective of penetrating the market <pause dur="3.5"/><kinesic desc="changes transparency" iterated="y" dur="5"/> in terms of the pricing strategy you might be trying to achieve <pause dur="1.7"/> there's a range of different choices that you can make <pause dur="2.2"/> those choices relate to the price that you charge <pause dur="0.4"/> and the market share <pause dur="0.2"/> that you wish to gain <pause dur="4.4"/> if you charge a low price <pause dur="1.2"/> and you're offering value to the market obviously <pause dur="1.7"/> then <pause dur="0.8"/> at a low price <pause dur="1.4"/> you may well gain <pause dur="0.2"/> a high penetration of the market <pause dur="0.2"/> this is assuming that you have something that the customers want <pause dur="1.6"/> and that's the aims of the mobile phone <pause dur="0.2"/> producers <pause dur="0.8"/> they've lowered their price <pause dur="1.8"/> they're having digital technology <pause dur="0.2"/> and mobile wire-free <pause dur="0.4"/> phones something that they believe that the market wants <pause dur="0.4"/> but to actually penetrate that market <pause dur="0.2"/> to get enough people to take the mobile phones <pause dur="0.8"/> to make it viable i mean basically the they're they're putting their profits back <pause dur="0.5"/> if you talk about something like Orange they're not making <pause dur="0.8"/> massive profits or indeed any profit until recently <pause dur="0.4"/>

because all the money is going back into building the network building the <pause dur="0.5"/> the <pause dur="0.9"/> signals so they can reach enough of the population <pause dur="0.6"/> and in order to get the money to do that they need to penetrate the market they need to get enough people to use the phones <pause dur="2.0"/> the other choice that you could make <pause dur="0.4"/> is to say well okay we charge <pause dur="0.3"/> full price for our mobile handset we charge three-hundred pounds for a digital phone <pause dur="0.3"/> or before it came into the consumer market we're charging <pause dur="0.6"/> a thousand-<pause dur="0.2"/>plus pounds <pause dur="0.2"/> for a an analogue phone at the time <pause dur="0.4"/> # for the business market and we know that only a few people will be able to afford that <pause dur="0.8"/> but if they're <trunc>cha</trunc> # charging <pause dur="0.7"/> if we're charging a high enough price <pause dur="0.2"/> and we're making a high enough margin on that <pause dur="0.4"/> then we can afford to skim the market <pause dur="0.3"/> so the opposite <pause dur="0.2"/> strategies there <pause dur="0.2"/> are penetration where you're getting a large market share <pause dur="0.3"/> and a relatively low margin <pause dur="0.7"/> or <pause dur="0.2"/> skimming <pause dur="0.3"/> where you're going to get a high margin from a small amount of the market <pause dur="1.1"/> another example of that would <pause dur="0.2"/>

market penetration would be <pause dur="0.2"/> one of the mass market cars so it would be a <pause dur="0.2"/> a Fiesta or a Metro or a Mini or something like that <pause dur="0.4"/> # <pause dur="0.4"/> whereas with the skimming <pause dur="0.4"/> part of the market would be <pause dur="0.2"/> Lexus <pause dur="3.0"/> or one of the upmarket cars at the other end so <pause dur="0.2"/> you can you can have different approaches both of which would offer you a profit <pause dur="1.0"/> there is <pause dur="2.0"/> the possibility although it is only a possibility of having a high priced <pause dur="0.4"/> high market share product <pause dur="0.7"/> can you actually think of any examples of that <pause dur="1.7"/> where you charge a high price and gain a high market share <pause dur="9.6"/><kinesic desc="raises eyebrows" iterated="n"/> there's one at the moment which is very dear to my heart <pause dur="0.4"/> having shopped around for Teletubby dolls <pause dur="0.6"/> couple of Christmases ago for my kids <pause dur="0.5"/> when they came into the market <pause dur="1.6"/> Teletubby dolls you just couldn't get it was a supply demand thing <pause dur="0.4"/> # <pause dur="0.8"/> and <pause dur="0.3"/> they were limiting it to one per customer you couldn't have all four 'cause it may you may not be the Teletubby market but believe me i've i've i've watched them <pause dur="0.2"/> you get very <pause dur="0.3"/> keen to watch them when your children are <pause dur="0.4"/> # are keen on

Teletubbies you know all their names all the songs <pause dur="1.5"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> these things cost <pause dur="0.5"/> # <pause dur="0.8"/> people have told me that they actually should retail out at <trunc>th</trunc> <pause dur="0.2"/> twenty-nine pounds <pause dur="0.2"/> because they were in such short supply when they first came into the market and they were a real fashion thing <pause dur="0.6"/> people were selling them on the black market trading them for hundreds of pounds so that their kids wouldn't be disappointed at Christmas <pause dur="0.4"/> the same thing's happened now with <pause dur="0.5"/> Beanie babies and Furbies and goodness knows what because they're fashion items they're fads they've really come into the market and they're gaining a high market share <pause dur="0.9"/> and for a short period of time <pause dur="0.7"/> the a lot of the market will buy them <pause dur="0.2"/> and they will <pause dur="0.2"/> buy them at a high price <pause dur="0.8"/> but it won't be sustainable it'll move onto something else <pause dur="0.4"/> and actually Teletubbies aren't demanding the price that they were <pause dur="0.9"/> that's almost a <pause dur="1.3"/> a sort of chance example you you can have a fad <pause dur="0.5"/> have you done product life cycle yet <pause dur="2.1"/> no <pause dur="1.3"/> product life cycle says that a product will <pause dur="0.2"/> be

introduced into a market will grow gradually will mature <pause dur="0.4"/> and then eventually decline <pause dur="0.8"/> there's a <pause dur="0.2"/> product life cycle that goes with a fad <pause dur="1.3"/> and it goes it's it's it's not a gentle curve like that it's a triangular thing it goes sharp up and then sharp back down again <pause dur="0.4"/> because they grow very quickly <pause dur="0.6"/> but they decline very fast <pause dur="1.6"/> as well as something like a fad <pause dur="0.8"/> you can get examples of something which sells to a large amount of the market at a high price <pause dur="0.5"/> if it's something that we aspire to <pause dur="1.0"/> and a classic example of this does anybody here drink Schweppes Oasis <pause dur="3.8"/> no <pause dur="2.1"/> i know it's in the campus shop it was in the campus shop <pause dur="0.4"/> and it also sells at the various other bars and so on <pause dur="0.7"/> does anybody know by a chance what it costs <pause dur="0.4"/> or what kind of price you'd expect to pay per bottle <kinesic desc="raises eyebrows" iterated="n"/></u><pause dur="0.8"/> <u who="sm1205" trans="pause"> is it about seventy pence </u><pause dur="0.8"/> <u who="nm1192" trans="pause"> it might be now it was marginally more than that it was about a pound a bottle at one stage certainly <pause dur="1.3"/> but it's relatively expensive compared to other <pause dur="0.3"/> it's a soft drink it's an adult soft drink compared to other adult soft drinks it's quite an expensive one <pause dur="0.8"/> when

they actually entered the market with it when they launched it <pause dur="0.4"/> they believed it was going to be a niche product <pause dur="0.2"/> so they believed <pause dur="0.2"/> that what they were trying to do was skim the market <pause dur="0.3"/> and they were trying to be in that position there <pause dur="0.3"/> when they were charging a high price <pause dur="0.3"/> and they were going to get a small amount of the market that small amount of the market was going to be <pause dur="0.9"/> probably male <pause dur="1.6"/> probably <pause dur="0.5"/> # <pause dur="0.3"/> mid-twenties to mid-thirties single <pause dur="0.5"/> # <pause dur="1.9"/> gone out for the evening <pause dur="0.7"/> and <pause dur="0.4"/> the driver for the evening so driving home <pause dur="0.4"/> not able to drink much alcohol <pause dur="0.7"/> doesn't want to <pause dur="0.3"/> to be seen <pause dur="0.2"/> drinking cans of Coke all evening <pause dur="0.2"/> # and aspires maybe something a little bit more sophisticated so when they launched it into the market the idea was <pause dur="0.3"/> that it was a sophisticated soft drink <pause dur="0.6"/> and there's all kinds of background to that <pause dur="0.6"/> we are apparently a soft <pause dur="0.2"/> soft drinks generation <pause dur="0.6"/> actually i'm i'm <pause dur="0.6"/> i'm classing myself in the same generation as you i'm i was a sort drinks generation <shift feature="voice" new="laugh"/>you're second generation soft drinks users <shift feature="voice" new="normal"/><pause dur="1.3"/> my

parents' generation <pause dur="1.1"/> as they got to adulthood they switched towards drinking tea and coffee <pause dur="1.2"/> they didn't drink soft drinks <pause dur="0.7"/> we've grown up with cans of Coke and cans of <pause dur="0.5"/> Sprite and and Seven-up whatever else <pause dur="0.2"/> and we've got into the habit of drinking soft drinks and we continue to drink them <pause dur="0.4"/> when we get to adulthood <pause dur="0.4"/> we start drinking more sophisticated things so you go out if you don't drink Oasis you might go out and have a glass of mineral water sparkling mineral water <pause dur="0.6"/> what kind of price do you pay for mineral water in a bar <pause dur="2.6"/> it's ridiculous you can you can pay <pause dur="0.3"/> two three pounds for a glass of mineral water <pause dur="0.4"/> where you pay you know one-pound-fifty two pounds for a large bottle of mineral water in a supermarket <pause dur="2.0"/> but that kind of market the the <pause dur="0.3"/> drinking in the evening <pause dur="0.2"/> adult sophisticated drinks <pause dur="0.9"/> is quite a a premium priced skimming market <pause dur="2.1"/> when Oasis launched <kinesic desc="indicates point on transparency" iterated="n"/> that's where it thought it was going to be <pause dur="0.3"/> on pricing strategy <pause dur="1.7"/> does anybody know what happened to it <pause dur="2.8"/> does anybody know who drinks it <pause dur="2.1"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> well

the answer is you're probably too old <pause dur="0.7"/> # because although they thought they were going for twenty-five to thirty-five <pause dur="0.4"/> # <pause dur="1.2"/> reasonably sophisticated <pause dur="0.8"/> males <pause dur="0.4"/> what actually happened was they started advertising it in all the types of places you would need to to get it to that audience <pause dur="0.3"/> so they were putting it in in various <pause dur="0.8"/> of the magazines not that they were just targeting males targeting females as well so they were putting it in <pause dur="0.3"/> She and Mizz and and they put it on Capital Radio's Hall of Fame and various other types of advertising <pause dur="0.5"/> and the people who saw it and the people who aspired to it <pause dur="0.3"/> weren't the twenty-five to thirty-five year olds <pause dur="0.2"/> they were the sixteen year olds <pause dur="0.7"/> because the sixteen year olds thought it must be a sophisticated drink <pause dur="0.6"/> and they weren't old enough to go out to bars and drink <pause dur="0.5"/> so well <pause dur="0.2"/> not officially <pause dur="0.3"/> # <vocal desc="laughter" iterated="y" n="ss" dur="2"/> so they were going out and they were buying it from garage forecourts and newsagents and things like that because Oasis was was something that was trendy to

drink <pause dur="0.6"/> for a pound per bottle <pause dur="1.2"/> and what they actually ended up with was a high market share high priced product <pause dur="0.7"/> and at one point in the U-K Oasis had seventy per cent market share <pause dur="0.8"/> so it was massive <pause dur="0.5"/> and Frutopia <pause dur="0.6"/> and Snapple who were its rivals <pause dur="0.2"/> basically Frutopia who's owned by Pepsi <pause dur="0.3"/> pulled out of the market said i can't compete with this product <pause dur="0.3"/> even though it's owned by a very big name <pause dur="0.3"/> because they've got such market share <pause dur="1.1"/> now what you're telling me <pause dur="1.3"/> seems to be that that market is dying out of popularity too <pause dur="0.2"/> but for a time at least <pause dur="0.3"/> it achieved the virtually impossible position <pause dur="0.3"/> of high market share and high price the ideal for all firms in terms of profit <pause dur="1.4"/> the opposite end of the market <pause dur="1.2"/> you get somebody who's got a low price and a low market share <pause dur="1.4"/> and <pause dur="0.3"/> my guy making <pause dur="0.7"/> chest of drawers for the <pause dur="0.2"/> the bathroom <pause dur="0.3"/> at very low prices is probably in that <kinesic desc="indicates point on transparency" iterated="n"/> <pause dur="0.4"/> part of the market it's a niche <pause dur="0.8"/> the niche <pause dur="0.3"/> which is probably serving the declining market the end of the product life cycle <pause dur="0.3"/> quite often <pause dur="1.8"/> let me think

what else would be in there then <pause dur="0.2"/> if it's <pause dur="0.5"/> serving declining markets <pause dur="0.2"/> something like black and white television <pause dur="0.5"/> would also be in that part of the pricing strategy something where <pause dur="0.3"/> there aren't many people left who want to use it <pause dur="0.2"/> but there are some <pause dur="0.7"/> and those people who are the ones who want to use it are probably there because they can't afford to trade up to the newer technologies that have come in <pause dur="1.0"/> they are in their current life cycle terms the laggards i always thought that was a very sort of unflattering term they are the laggards <pause dur="2.3"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> <unclear>i just</unclear> it always sounds great if you're called innovator or a whatever else but being called a laggard somehow is bit kind of # <pause dur="0.7"/> it's about as as good as being called a dog isn't it in the # <pause dur="0.5"/> purely in in Boston Consultancy Group Matrix terms <pause dur="1.6"/><vocal desc="laughter" iterated="y" n="ss" dur="1"/> so there's a niche at <kinesic desc="indicates point on transparency" iterated="n"/> that part of the market too <pause dur="3.8"/><kinesic desc="changes transparency" iterated="y" dur="4"/> market orientated price index <pause dur="2.2"/> it's to do with what price your competition are charging <pause dur="1.0"/> apart from some rare examples one of which we've just had there

with the mobile phones <pause dur="0.2"/> you're going to want to cover your costs <pause dur="3.6"/> there may be situations where <pause dur="0.2"/> you've got to negotiate the margins <pause dur="0.3"/> because all of this that we've talked about so far <pause dur="0.8"/> is implying that you're dealing directly with your end customer <pause dur="0.7"/> now the other parts of the the marketing mix that we're going to look at <pause dur="0.2"/> next week we're going to talk about place <pause dur="0.6"/> place actually <pause dur="0.9"/> is largely about your distribution channels how you actually get your products <pause dur="0.4"/> to the market <pause dur="2.8"/> and if you're going via <pause dur="0.8"/> a retail <pause dur="0.2"/> multiple <pause dur="0.6"/> if you're going via a car dealership <pause dur="1.3"/> you may not able be able to set your prices <pause dur="0.3"/> as you wish <pause dur="0.4"/> so even if you're taking into account your quality <pause dur="0.6"/> even if you're saying what are we offering the market <pause dur="0.2"/> what are our competition doing <pause dur="0.2"/> what's our value <pause dur="1.0"/> there's somebody else an intermediary between you <pause dur="0.4"/> and the customer <pause dur="0.4"/> in this case if you're talking about something like food retailing <pause dur="0.4"/> you're talking in the U-K about five chains who have eighty-something per cent of all the distribution of food <pause dur="0.7"/>

and clearly <pause dur="0.4"/> as there's only five <pause dur="0.6"/> firms who control all of that market they've got a lot of power <pause dur="1.4"/> i used to work for Unilever <pause dur="0.3"/> before i became an academic and # <pause dur="0.9"/> it got to the stage where if those five firms didn't want to list your new product <pause dur="0.9"/> when you actually <trunc>w</trunc> had an idea and you were going through the process of launching it in the market <pause dur="0.3"/> thought you may as well not introduce it <pause dur="0.2"/> because you were left trying to get it listed by something like <pause dur="0.3"/> ten to to fifteen per cent of the market <pause dur="0.3"/> and you knew <pause dur="0.3"/> if your strategy as we've said before was to penetrate the market you knew that you weren't going to be able to do that <pause dur="0.3"/> you could at best get a niche position <pause dur="0.5"/> so that was okay if it was a premium product <pause dur="0.3"/> but it wasn't if it was something that you were aiming at the mass market you just wouldn't get the distribution <pause dur="2.4"/> if the <pause dur="0.2"/> channel <pause dur="0.5"/> wants to make the maximum margin <pause dur="0.3"/> so Sainsbury's or Tesco's <pause dur="0.2"/> want to make as much money as they can out of something like Schweppes Oasis <pause dur="0.6"/> and also

the firm making it wants to <pause dur="1.8"/> you can't both put on the margin you want to and add it up and and then sell it out to the market 'cause what would happen if you did that <pause dur="4.8"/> think back to the the competition </u><pause dur="5.2"/> <u who="sm1206" trans="pause"> <unclear>maybe it would</unclear> just undercut it </u><pause dur="0.7"/> <u who="nm1192" trans="pause"> sorry </u><pause dur="0.2"/> <u who="sm1206" trans="pause"> maybe it would just undercut it </u><pause dur="0.6"/> <u who="nm1192" trans="pause"> yeah well i mean basically what what you'd be doing is you'd be charging a lot more <pause dur="0.7"/> for no apparent added value <pause dur="0.7"/> because <pause dur="0.3"/> in the channel <pause dur="0.2"/> they'd put on the margin you'd put on the margin you'd be double counting that you'd be making it more expensive than the competition <pause dur="0.7"/> for no more value <pause dur="0.5"/> people wouldn't buy it <pause dur="0.3"/> and rightly as you say <pause dur="0.4"/> if <pause dur="1.0"/> there's competition between retail chains <pause dur="1.1"/> if you both hang on to the fact that you want to make say twenty per cent margin for your product <pause dur="0.5"/> a competitive chain can sell it cheaper <pause dur="1.3"/> you're not going to sell your product people are going to start switching to somewhere else so it's in nobody's interest it's not in the producing firm's interest it's not in the retail chain <pause dur="0.2"/> chain's interest <pause dur="0.6"/> what they have to do is be sensible in

the negotiation of the margin <pause dur="0.2"/> so to get and and quite often what happens is they have a price point that they have in mind <pause dur="0.3"/> for a product <pause dur="0.2"/> what they're going to sell it at <pause dur="0.3"/> and they have to work back <pause dur="0.9"/> how much profit each of the the people in the the channel are going to make <pause dur="4.6"/><kinesic desc="changes transparency" iterated="y" dur="4"/> i'll just summarize the price quality relationship issues <pause dur="7.1"/> what we're saying is there are different types of relationship between price and quality that you can have <pause dur="1.5"/> if your quality is high <pause dur="1.1"/> and your price is <pause dur="0.2"/> is high <pause dur="0.2"/> that is a classic premium strategy <pause dur="0.7"/> so remember when we're talking about <pause dur="0.3"/> competitive pricing we were saying <pause dur="0.3"/> you couldn't charge a premium over and above competition <pause dur="1.0"/> you can do that <pause dur="0.4"/> if your quality is high <pause dur="2.5"/> if you have medium quality <pause dur="1.0"/> and you want to charge a high price <pause dur="2.9"/> you you're in one of two positions you're either slightly overcharging <pause dur="0.3"/> because if you're charging a very high price for something which is a a <trunc>m</trunc> a moderate quality <pause dur="0.5"/> then you're slightly overcharging <pause dur="0.4"/> and the likelihood is that

if there's something better in the market that the competitors the customers are not going to buy it <pause dur="1.8"/> if you're charging a medium price <pause dur="0.2"/> for very high quality <pause dur="0.8"/> you get the opposite effect it's very good value <pause dur="1.1"/> if for some bizarre chance <pause dur="1.6"/> like the person making furniture for our bathroom <pause dur="0.3"/> and basically because he doesn't <pause dur="0.2"/> look at what the market's prepared to pay <pause dur="0.4"/> you're actually offering very high quality <pause dur="0.5"/> for a low price then what you're offering is a superb value strategy <pause dur="3.0"/> as a matter of interest we actually went back to him and told us he ought to be charging us more <pause dur="1.3"/><kinesic desc="raises eyebrows" iterated="n"/> because we felt that <pause dur="0.7"/> i mean i don't want to pay at the top end of the scale but we were prepared to pay more than you know at least the equivalent of of buying it flat-pack <pause dur="0.6"/> # <pause dur="0.5"/> and he wouldn't accept it he just didn't believe us that you could actually charge more than that to the market <pause dur="0.2"/> so there are people who are superb value <pause dur="2.8"/> the opposite extreme <pause dur="0.3"/> is <pause dur="0.9"/> if you've got a poor quality <pause dur="0.3"/> and you're charging a high price <pause dur="0.6"/> that's a classic

rip-off strategy <pause dur="1.9"/> and i suppose you're sitting there thinking well you know when would that happen you you wouldn't buy would you <pause dur="0.4"/> but there are instances when you would <pause dur="1.0"/> have you ever been stuck in an airport <pause dur="2.1"/><kinesic desc="raises eyebrows" iterated="n"/> anybody been stuck in an airport anybody been stuck outside the station waiting for a taxi <pause dur="1.4"/> you've missed the last bus or the last train <pause dur="0.4"/> # it's raining <pause dur="0.5"/> # and there's a taxi there <pause dur="0.6"/> how price sensitive are you <pause dur="1.3"/> assuming you've got money sufficient money in your pocket you'll pay whatever you need to pay to get home <pause dur="0.9"/> if you've been stuck in an airport for long enough and it's hot <pause dur="0.5"/> you're waiting for your flight <pause dur="0.5"/> and you want a drink <pause dur="0.6"/> you'll go and you'll pay well over the odds for that that drink <pause dur="0.4"/> that kind of <pause dur="0.8"/> pricing strategy only works it's called opportunistic it only works <pause dur="0.3"/> if they're not relying on somebody coming back to them again <pause dur="1.8"/> so if they think they're never going to see you again <pause dur="0.7"/> they can overcharge you they can rip you off <pause dur="0.2"/> once <pause dur="0.6"/> # <pause dur="0.7"/> if you do that to a customer <pause dur="0.3"/> i mean the basis of

marketing really is on repeat business if you do that to a customer more than a certain number of times they're just not going to come back to you <pause dur="1.5"/> and of course in the middle of those you can <trunc>s</trunc> have <pause dur="0.5"/> medium quality and and a high price is is sort of <pause dur="0.2"/> poor value rather than a rip-off <pause dur="0.4"/> # <pause dur="1.3"/> that niche position we saw where you had a low market share and a low price <pause dur="0.4"/> for something like black and white television is is the economy end of the market <pause dur="0.4"/> and there's also a niche of the market <pause dur="0.4"/> in quite a lot of sectors so there's a niche <pause dur="0.5"/> cheap car market <pause dur="0.4"/> for Lada or or Skoda or whatever <pause dur="0.2"/> there's a niche <pause dur="0.3"/> # cheap food market for Kwik Save Aldi Netto and so on <pause dur="0.2"/> so <trunc>i</trunc> in quite a lot of markets there is an economy <pause dur="0.4"/> position you can take as well as a premium position <pause dur="0.5"/> if you go for an economy pricing strategy <pause dur="0.4"/> it can only be on the basis really that you want to <trunc>char</trunc> you want to sell a lot of units <pause dur="0.6"/> so you want to penetrate the market and make a profit in that way <pause dur="2.0"/> okay we can leave it there for today thank you

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