nm1192: this is the first week of [0.2] market analysis for this term and we're 
going into the marketing mix and the marketing mix comprises of [0.2] pricing 
place promotion [0.4] and product [1.1] we're starting off with pricing issues 
[5.0] how many of you have done accounting for finance courses before have done 
accounting courses [2.0] yeah [0.2] good [1.6] don't worry about it i'm not 
going to ask you complicated questions i'm not going to pick on you [0.7] er [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 [1.1] and it's the most obvious in a 
sense because it means that when you want to [1.0] launch something into the 
market when you want to price something [0.3] you start off by working out what 
it costs [1.6] two methods both the variable costs [0.2] so only those that are 
used by the product itself in making it labour materials and so on [1.8] and 
the 
second choice which is why i asked if anyone had done accounting and finances 
course [0.3] is the full cost method where you would actually absorb in the [0.
4] overheads [0.2] and allocate the proportion of overheads to the product as 
well [1.2] whichever of the methods of costing you use [2.6] the marketers 
would say that there's a disadvantage to this method of pricing [0.7] that is 
you start off [0.3] working out that you need to [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 [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 [0.4] saying well we've got this product [0.4] 
and we want to decide [0.3] how we make a sufficient profit out of it [0.9] and 
it's the equivalent really of the [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 [0.7] er did you hear the example last term of Kevlar [0.2] DuPont [0.4] 
Kevlar was this incredibly clever fabric that was going to follow on from from 
Nylon and it was [0.3] it's light and it's very strong and it's all of these 
other fine things [0.4] and they invented it [0.2] but they didn't have any 
idea what they were going to do with it [0.6] and nobody in the market could 
actually find an application for Kevlar [0.3] for so it was about [0.4] several 
years after it had actually been invented [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 [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 [0.5] very clever [0.6] 
but it may well not have succeeded [0.6] now [0.2] the cost oriented pricing 
method is is basically er the equivalent you start off saying i've got this 
product i have to decide what to price it at [0.4] well if it was Kevlar you'd 
be saying we need to work 
out how much we've spent on developing it [0.3] we need to know how much it 
costs to make it 
nm1192: so the markets would say the problem with this is that it's a classic 
supply [0.2] side kind of way of pricing your products [0.8] and the dangers of 
it are that [0.2] you may actually sort of think that the market is going to 
not want to pay more for your product but actually [0.6] you misunderstand the 
nature of the demand or [0.2] you work out [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 [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 [1.8] so [0.4] we move towards methods where you actually 
take into account what's going on outside the firm [0.6] and 
the first of those is com-, [0.3] competition oriented pricing [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 [0.8] and are we aiming to be [1.
3] at about the same rate [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 [1.8] so if cost plus pricing [1.1] is 
[1.4] saying that you've got a cost and you want to charge a margin [0.6] over 
and above that [2.5] competition based pricing [4.1] says that if i've got 
product [0.3] A [0.5] if i'm going to launch a new mobile phone into the market 
[0.9] and it's already a competitive market and there's lots of different 
people out there [0.3] charging X [0.5] price per minute [0.2] charging 
whatever rental for the phones 
nm1192: then i have to make some basic choices about what my strategy is and 
this is where marketing mix [0.2] links back to things that you've already 
talked about [0.4] 
so when you launch a new product when you're looking at your strategy for the 
market [0.3] you have to decide [1.3] what kind of objectives you have and that 
will largely determine your pricing strategy [1.5] if [0.7] you want for 
example to penetrate the market so you want to offer additional benefits [2.3] 
over and above your competitors [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 [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 [0.9] 
maybe you want to get your brand known in the market [0.5] then you have the 
choice of undercutting [0.3] the competition [1.6] what's the danger of 
undercutting the competition [1.7] 
sm1193: you're starting a price war 
nm1192: yeah [0.5] and nobody ends up winning [0.6] not so many years ago [1.0] 
about five or six years ago i was talking to some of the banks [0.5] and they 
were saying that in that market [0.4] 
the only basis on which you could compete was on cost [0.2] so the only thing 
you could do was to to cut out your bank charges [0.3] or to lower your rate of 
interest [0.3] or to improve the er interest that [0.2] savers were going to 
get on their savings it was all to do with price [0.4] and they all felt that 
to gain business from their competitors in that mature market they had to 
undercut the competition [0.7] the danger of that was that people then begin to 
lo-, perceive that the price should be lower and lower and lower for that type 
of service 
nm1192: the danger if you undercut the competition [0.4] is that you devalue 
what you're actually offering into the market [0.3] and this was exactly what 
happened with holidays a few years back [0.5] we would have looked at the 
brochure 
and worked out [0.2] what kind of holiday we wanted what kind of destination we 
wanted what kind of budget we were on [0.2] were we looking for [0.5] upmarket 
tailor-made [0.2] cheap and cheerful holidays [0.8] but then we all got into 
the fact that you could actually get holidays cheaper [0.6] and the reason why 
you were getting holidays cheaper is that they were actually selling their late 
availability holidays [0.4] so the last minute holiday firms had had seats left 
on planes or [0.3] hotel rooms vacant [0.3] would reduce the price of those 
holidays [0.6] and after a while [0.7] once everybody began to know that you 
could get cheap holidays at the last minute [0.7] [cough] [0.2] we stopped 
paying full price [1.0] we all started thinking that was about the price that 
you ought to pay for a holiday [0.5] and we didn't book ahead [1.0] and the 
firms [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 
[0.9] so the 
danger of undercutting [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 [1.8] the alternative of course is if you really 
believe [0.2] in the [0.2] the benefits that your product provides [0.9] that 
you should actually be charging premium for those benefits [0.4] and so the 
third [0.7] rate of pricing that that we talked about there [7.3] is market 
oriented pricing [0.7] and market oriented pricing is in a sense the opposite 
[0.2] of cost oriented [0.2] so rather than starting from the firm and looking 
out at the market and saying [0.4] what price do we want to charge [0.3] it's 
looking at the customers [0.8] going right back to your marketing strategy and 
saying well what benefits do we offer [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 [0.6] have designed into this product or service [1.0] i'm going to 
give you an example of that [1.3] the example [0.9] has anybody 
done the John Deere case study [1.4] no [2.5] the example is to do with 
bulldozers [2.7] John Deere bulldozers [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 [0.4] and in the over a hundred 
horsepower they were up against some very strong competition they were up 
against people like Caterpillar [0.8] they were up against people like Kamatsu 
[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 [1.7] what they actually did was design a new product [0.4] because 
they were in the smaller machine market they'd actually got very good at 
getting [0.2] flexible manoeuvrable machines [0.5] and when they went into the 
larger market they designed one [0.9] that had a tighter t-, turning circle the 
tighter turning circle [0.6] the tighter turning circle meant that you could 
gain ten to fifteen per cent productivity [0.2] out of this machine [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 
[0.4] increase in productivity [1.7] when they had to [0.2] launch into the 
market they had a pricing decision to make [0.8] they could go in [0.5] at the 
same price as Caterpillar [0.3] Caterpillar were well established in the market 
[0.3] they had strong distribution [0.5] they had a good ca-, also spares [0.5] 
network service [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 [1.0] a road or if you [0.2] you're involved in some kind of 
building project [0.3] you may well have penalty clauses if you don't deliver 
on time [0.8] it's going to be very important to you that you actually have a 
reliable machine [0.5] so Caterpillar had all of that established in the big 
bulldozer market [1.7] John Deere [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 [0.6] building firms [0.2] 
so quite often the person buying the 
machine for John Deere would be the person who was going to use it [0.4] with 
the Caterpillar machines quite often there was a large project team involved [0.
3] it'd be a larger decision there'd be a whole team of people involved maybe 
one person [0.4] deciding what ought to be commissioned one person doing the 
purchasing somebody else being the user [1.9] so there's a whole series of 
things tied up in that not just what price [0.2] John Deere should charge [1.5] 
if you ask [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 [1.7] and if so why [4.5] no [1.2] yes [0.3] 
sm1194: er i think they should because [0.2] established than Caterpillar [0.6] 
[0.3] 
nm1192: okay [0.2] yeah so there is a logic that says [1.2] if you go in at 
less than Caterpillar [0.3] it's possible that people in that market will buy 
your machine now [0.3] otherwise they may say why should i switch from 
Caterpillar i'm quite happy with them [1.2] can anybody see any [0.5] issues 
with charging less 
than Caterpillar [0.4] yeah 
sm1195: they might just think that they're cheap and [0.2] might [0.3] be [0.3] 
unreliable therefore [laughter] 
nm1192: yeah [0.2] so [0.3] there's a price quality relationship in people's 
minds quite often where you say [0.2] why is it cheap i mean we're all sort of 
[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 [1.0] now if 
they're going out saying there's a ten to fifteen per cent increase in 
productivity [0.4] and they're going to charge less then Caterpillar [0.3] what 
would you think about the ten to fifteen per cent increase in productivity [2.
4] yeah 
sm1196: ten to fifteen per cent decrease in reliability though [0.3] 
nm1192: yeah you'd say well [0.4] th-, [0.2] can they really deliver that if 
they could really deliver that why would they be charging less than Caterpillar 
so [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 [0.9] how about 
charging the same price [0.3] as Caterpillar [4.5] what do you think the market 
would think to that [9.7] any 
offers [1.1] 
sm1197: er they'd think it was better value [0.8] 
nm1192: they would th-, [0.2] 
sm1197: just think it's a better value 
nm1192: yes so that could really work because if you've got your ten to fifteen 
per cent increase in productivity [3.0] and you go in at the same price as 
Caterpillar [0.2] the market would say [0.4] could say assuming they believe in 
this ten to fifteen per cent increase in productivity [0.5] well that's 
actually very good value [0.6] now you might actually not have quite the same 
[0.3] drawbacks as you would have if you charge less than Caterpillar because 
people [0.3] wouldn't be quite as suspicious they'd say well [0.6] they're not 
charging less than Caterpillar they're charging the same price that would seem 
like a reasonable thing to do [1.2] why do you think [0.6] John Deere might 
decide to do that [3.4] and it comes back to the point that you've just made [6.
5] 
sm1198: it's less of a decision between Caterpillar and John Deere 
nm1192: yeah [0.6] see otherwise [1.2] in this particular case John Deere are 
asking the buyers to [0.2] take a lot on faith aren't they i mean they can take 
their bulldozer to [0.2] i don't know [0.4] whatever bulldozer exhibition and 
maybe they can demonstrate this increase in productivity they can come up with 
technical specifications [0.6] and try to show those to their customers to say 
look [0.2] we really can deliver this [0.5] but to a a a set of buyers who are 
actually happy with Caterpillar who are concerned about reliability [0.6] 
they've got to persuade them somehow to take the risk [0.3] and buy their 
machine [0.5] and if they are [0.3] not offering [0.4] a benefit over and above 
Caterpillar [0.4] maybe the [0.2] the buyers will not be convinced and not [0.
3] switch from [0.2] their Caterpillar machine to John Deere [1.6] what's the 
maximum price they could charge [10.3] 
sm1199: market [0.3] 
nm1192: yes [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 [0.2] you'd have to calculate what that is [0.3] what a ten to fifteen per 
cent [0.5] increase in productivity [0.2] would mean [0.9] and you could work 
it out if you had the figures for [0.4] 
labour and and the basic [0.2] the the purchase price of the machine [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 [0.2] you can work out [0.4] what you 
save by a ten to fifteen per cent increased productivity [0.6] ten to fifteen 
per cent [0.3] more out of that machine over its lifetime [0.5] and that would 
be the maximum price that you could [0.3] charge [0.8] and basically that ten 
to fifteen per cent more [3.7] that's basically what we mean by market oriented 
pricing [0.6] there's a [0.3] a method of [0.2] of calculation of prices the 
third method [0.3] which is called economic value to the customer [1.9] and 
rather than just [0.4] say we're we are satisfying a set of needs and wants in 
the market [0.6] you actually work out [0.6] what the [0.2] the price should be 
[0.3] if you were offering [0.4] those benefits over and above the price of 
your competition [0.3] so you start off by benchmarking with the competition [1.
3] you take into account [0.2] hopefully [0.3] the strategic things about how 
will the market perceive you if you are cheaper [0.3] if you're more expensive 
[0.3] than 
your competition [0.5] but you can work out what benefits you might be offering 
over and above the competition [2.4] market oriented pricing [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 [1.0] first thing you'd have to 
have your marketing strategy [1.0] now [2.6] if you look at the car market [2.
5] and start off by saying what price can you charge for your product [1.6] 
what would happen [0.9] if you had Skoda quality [0.6] and you charged Lexus 
prices [7.2] 
sm1200: no one would buy it [0.4] 
nm1192: nobody would buy it [0.2] yeah [0.7] what would happen if you had [0.5] 
er [1.2] Lexus quality and you charged Skoda prices [0.4] 
sf1201: sell out 
nm1192: you'd sell out on the first day [0.6] er what would you be doing to 
your company profits [1.8] selling for far less than you you would need to [0.
5] i mean that's an extreme example but basically [0.2] what we're trying to 
get to is the fact that [0.6] the price that you can charge the market [0.4] 
has to relate [0.2] to the type of product [0.4] the features that you're 
offering the quality that you're offering [1.6] 
what quite of distribution you're selling it to all those other factors so you 
can't just sa-, decide your price in isolation [0.3] that's what's wrong with 
cost oriented pricing that we saw at the [0.2] beginning of course [0.3] you 
almost always will want to cover your costs [0.3] unless for some particularly 
strategic reason you want to get into a market fast [0.3] and build a position 
[0.3] and then you believe that you can put the prices up from there [1.6] how 
easy is it to put your prices up once you've actually got into a market [1.0] 
sf1207: very difficult [0.2] 
nm1192: very difficult so that's what happened in the holiday example that we 
talked about earlier [0.3] once the market accepts [0.4] that [0.5] and 
basically price quality once the market accepts that you would normally pay two 
to three-hundred pounds for a [0.7] couple of weeks' holiday [0.5] in [0.2] 
Tenerife or wherever [1.0] it's very difficult to go back and say well actually 
you used to pay four to five-hundred pounds [0.2] and i want to charge you that 
now [0.3] because the market's going to think well i'm getting the same thing i 
used to [0.4] 
pay less for it why would i pay more [0.5] and they're going to be very unhappy 
about that [2.4] so you've got to look at your marketing strategy and relate to 
that [1.2] but just before we we move on [0.7] there's an interesting one what 
does a a mobile phone cost [3.8] has anybody got a mobile phone here [2.6] 
you're all going to deny it yes [0.7] [laughter] i haven't got mine with me or 
i'd use it as an [laughter] example [1.3] what does a mobile phone cost [0.5] 
the actual handset 
sm1202: the phone itself costs ten pou-, well [0.5] 
nm1192: ten 
sm1202: costs ten pounds but it costs three-hundred pounds to insure it 
[laughter] 
nm1192: yeah [0.6] yes [0.6] so this is the the thing about it i say that you 
would almost always want to cover your costs [0.4] when you get into a market 
[0.2] but mobile phones is one of the exceptions [0.9] sometimes you'd pay ten 
pounds for the handset sometimes you wouldn't pay anything at all [0.6] but as 
we're rightly saying there [0.2] the actual cost of it what it costs the firm 
to make is something like three-hundred pounds [0.6] why then would they charge 
you ten pounds or nothing at all for it [1.9] 
sf1203: contract [1.4] 
nm1192: and what about the contract [0.4] 
sf1203: it's binding and it has to be [0.2] [0.3] 
nm1192: yeah [0.6] 
sf1203: [0.8] 
nm1192: and why if you've got to be a customer for a year [0.6] why is 
that important in terms of price [1.3] 
sf1203: i think that it keeps up [0.3] with the consistent [1.1] 
nm1192: so what they assume is that the the er the problem for them is getting 
people into the market is getting people to have a mobile phone if you [0.4] 
either are contracted in [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 [0.4] over the lifetime of the phone from the 
from the airtime [0.4] and the contract and the various other things that they 
actually have with you [1.5] does anybody [1.0] maybe you're not old enough i'm 
certainly old enough [0.2] when the mobile phone market in the U-K started off 
[0.4] does anybody know what what handsets were were priced at to the customer 
then [1.8] 
sm1204: it was in thousands wasn't it [0.3] 
nm1192: sorry [0.4] 
sm1204: it was in thousands wasn't it [0.6] 
nm1192: it was in thousands but that was in the the the very early days my 
father-in-law had a mobile phone that was like you know [0.5] [laughter] mobile 
phone [0.2] and [0.2] we once borrowed this thing it was like a suitcase [0.5] 
er [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 [0.2] reasonably mountainous [0.3] so we took this thing 
thinking this'll be really useful and of course [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 [0.6] one of the things used to be 
actually getting [0.4] getting the signal on analogue phones was not good news 
[0.4] when the digital handsets first came into the market [0.3] for consumer 
use which is relatively recently [0.6] they were actually priced to the 
customer at around three-hundred pounds [1.7] and what happened [5.2] nobody 
bought them [1.2] because [0.6] people had had analogue phones and people by 
and large were reasonable happy with analogue digital came along [0.3] and it's 
a bit like digital T-V now [0.5] they were trying to get people into the market 
and people were looking at the prices saying well [0.2] would i use it [0.3] 
and the classic thing with mobile phones [0.2] and i am a classical case of a 
mobile phone user [0.4] 'cause i got my mobile phone [0.4] for emergencies only 
[1.0] 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 [0.2] and i won't dial out on it much 
but i've got this certain number of free minutes you see and [0.6] er i'll only 
use the free minutes [0.2] and if the car breaks down or i'm going to be late 
or what i'll be able to ring people [0.5] and then you start exceeding your 
free minutes [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 [0.4] and it's 
a life cycle [0.3] they want to get people in at the beginning because [0.2] 
once you get into using your phones [0.9] they actually make the money back [1.
5] have you seen the recent Orange [0.2] advertising in the U-K [1.6] i know 
there are inter-, international calls and whatever else what was what was the 
advertising before that [2.2] can anybody remember the Orange community [1.1] 
they had teams of rowing teams and they had families and whatever else because 
the latest thing that they're saying is [0.4] in order if if the money comes 
out of the 
airtime [0.7] what they want you to do now is is to have more handsets [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 [0.5] various 
other things you're going to give them [0.2] er 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 [0.9] because it's cheaper than than getting people to use 
unreliable callboxes and and [0.3] whatever [0.3] and you can get a card and 
you put a certain number of minutes on it [1.0] for a member of your family or 
or whatever to use their phone [0.3] so there are all kinds of things that 
they're doing now to to lock people into those contracts [2.1] you know what 
the most irritating thing is for the mobile phone providers [0.4] given that 
they're giving you this three-hundred pound phone for ten pounds [1.4] and i 
think when you said insurance you've probably got it [0.6] er [1.1] people 
because they [0.5] assume it only to be worth ten pounds or nothing at all [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 [0.6] you know bits of pen and things 
being in the bottom of the bag [0.5] er [0.5] people return them to their 
insurance departments [0.4] with all kinds of ridiculous thing you know oh the 
kid's dropped it in the bath [0.6] er [laughter] i spilt a can of Coke on it [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 [1.7] 
[laughter] they were surprised that it didn't work after that [1.2] so [2.0] 
you have a marketing strategy which dictates what kind of price range you're 
going to be looking at and it c-, of course it relates back to your position 
and your features your quality and all of those other things [1.9] there is a 
price quality relationship that you've got to take into account [1.3] it's 
quite possible to pra-, to charge too little [0.3] for a product as much as 
it's possible to charge too much [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 [0.4] and you charged less 
than the competition [0.3] you might be asking people to to sort of [0.7] not 
to trust in the value of your product in a way [0.5] that you believe that it 
must be [0.3] you know very good quality [0.3] because you're paying a higher 
price [1.4] you know that one of the classic cases of that to me [0.5] is er [0.
4] we had a [0.5] a carpenter come round the other day now we wanted a cupboard 
for our bathroom [0.3] and we want it to fit a gap about this big and [0.3] 
there is no pine [0.9] chest of drawers that fits into that kind of space [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 [1.
1] no way does it fit into the gap [0.5] and eventually [0.6] having looked in 
all the expensive shops for something tailor-made having looked at antiques 
having looked at all kinds [0.4] we found somebody advertising in the Yellow 
Pages and he makes furniture [0.7] and he brought us this catalogue of 
of beautiful [0.2] chests that he'd made of things exactly to your requirements 
tailor-made [0.3] he'd build it from scratch [0.9] and then we asked him how 
much [0.3] it was going to be for this chest of drawers [0.3] and he was going 
to charge us [0.3] something like er i don't know what his rate was ten pounds 
per hour for making this plus materials [0.5] and if you worked out even though 
it's going to take him a few days to make [0.4] it was going to be less than 
buying flat-pack furniture from IKEA or M-F-I or or wherever [0.3] to get this 
[0.3] tailor-made cupboard [0.6] built much better than you would get from any 
of the the furniture [0.4] wholesalers so he's [0.3] taking a cost plus [0.3] 
pricing method there he's working out what his time is he's working out his 
materials [0.5] he's one of these incredibly honest characters who's going to 
charge us like [0.3] thirty-something pence [0.3] er for a [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 [0.5] probably not 
going to notice [0.3] but he's going to charge you exactly what his labours are 
[0.4] and that that's you know very honest of him but you feel like saying look 
[0.2] ta-, take a take a pricing lecture [0.3] and say [laughter] it's economic 
value to the customer [0.2] i can't go out and buy this [0.7] i can't buy it 
from IKEA or M-F-I at whatever price [0.3] i've even looked in the expensive 
shops [0.5] i you know five six seven up to a thousand pounds [1.3] and you're 
going to charge me a hundred-and-fifty-pounds [0.9] er [0.2] sometimes the 
price sensitivity of the customer or the value that they're actually getting [0.
5] is much higher than the person is taking into account and that's one of the 
limitations of cost oriented pricing [0.8] you can end up underpricing your 
services to the marketing or undervaluing what you actually have to offer [1.0] 
of course you can also overvalue [1.0] if you're John Deere and you say we've 
got a ten to fifteen per cent [0.5] er [0.2] advantage over the competition [0.
6] the competition has to be prepared to pay that [0.5] and the problem that 
John Deere actually faced [0.3] was they 
went at the higher end of the pricing range because of their ten to fifteen per 
cent increase in productivity [0.5] and the market [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 
[0.3] and we've switched away from Caterpillar [0.8] and we've got to get the 
spares and will it be reliable and it [0.5] how professional are their small er 
service units going to be and so on [1.7] there's value to the customer 
competition as we've said [1.3] the signal to the market in terms of your price 
quality and your value are very much tied in to [0.6] the competition price [0.
5] if you're charging a premium [0.3] over the competition you've got to be 
offering superior value [1.5] if you're undercutting the competition [0.9] well 
maybe you're doing that because you're offering less value [0.3] or maybe 
you're doing it for some kind of strategic reason if you can persuade the 
customer [0.3] that the value is there [0.4] and the quality is 
there but you're charging less [0.3] then you can stand a very good chance of 
achieving the objective of penetrating the market [3.5] in terms of the pricing 
strategy you might be trying to achieve [1.7] there's a range of different 
choices that you can make [2.2] those choices relate to the price that you 
charge [0.4] and the market share [0.2] that you wish to gain [4.4] if you 
charge a low price [1.2] and you're offering value to the market obviously [1.
7] then [0.8] at a low price [1.4] you may well gain [0.2] a high penetration 
of the market [0.2] this is assuming that you have something that the customers 
want [1.6] and that's the aims of the mobile phone [0.2] producers [0.8] 
they've lowered their price [1.8] they're having digital technology [0.2] and 
mobile wire-free [0.4] phones something that they believe that the market wants 
[0.4] but to actually penetrate that market [0.2] to get enough people to take 
the mobile phones [0.8] to make it viable i mean basically the they're they're 
putting their profits back [0.5] if you talk about something like Orange 
they're not making [0.8] massive profits or indeed any profit until recently [0.
4] 
because all the money is going back into building the network building the [0.
5] the [0.9] signals so they can reach enough of the population [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 [2.0] the other choice that you could 
make [0.4] is to say well okay we charge [0.3] full price for our mobile 
handset we charge three-hundred pounds for a digital phone [0.3] or before it 
came into the consumer market we're charging [0.6] a thousand- [0.2] plus 
pounds [0.2] for a an analogue phone at the time [0.4] er for the business 
market and we know that only a few people will be able to afford that [0.8] but 
if they're cha-, er charging [0.7] if we're charging a high enough price [0.2] 
and we're making a high enough margin on that [0.4] then we can afford to skim 
the market [0.3] so the opposite [0.2] strategies there [0.2] are penetration 
where you're getting a large market share [0.3] and a relatively low margin [0.
7] or [0.2] skimming [0.3] where you're going to get a high margin from a small 
amount of the market [1.1] another example of that would [0.2] 
market penetration would be [0.2] one of the mass market cars so it would be a 
[0.2] a Fiesta or a Metro or a Mini or something like that [0.4] er [0.4] 
whereas with the skimming [0.4] part of the market would be [0.2] Lexus [3.0] 
or one of the upmarket cars at the other end so [0.2] you can you can have 
different approaches both of which would offer you a profit [1.0] there is [2.
0] the possibility although it is only a possibility of having a high priced [0.
4] high market share product [0.7] can you actually think of any examples of 
that [1.7] where you charge a high price and gain a high market share [9.6] 
there's one at the moment which is very dear to my heart [0.4] having shopped 
around for Teletubby dolls [0.6] couple of Christmases ago for my kids [0.5] 
when they came into the market [1.6] Teletubby dolls you just couldn't get it 
was a supply demand thing [0.4] er [0.8] and [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 [0.2] you get very 
[0.3] keen to watch them when your children are [0.4] er are keen on 
Teletubbies you know all their names all the songs [1.5] [laughter] these 
things cost [0.5] er [0.8] people have told me that they actually should retail 
out at th-, [0.2] twenty-nine pounds [0.2] because they were in such short 
supply when they first came into the market and they were a real fashion thing 
[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 [0.4] the same 
thing's happened now with [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 [0.9] and for a short period of 
time [0.7] the a lot of the market will buy them [0.2] and they will [0.2] buy 
them at a high price [0.8] but it won't be sustainable it'll move onto 
something else [0.4] and actually Teletubbies aren't demanding the price that 
they were [0.9] that's almost a [1.3] a sort of chance example you you can have 
a fad [0.5] have you done product life cycle yet [2.1] no [1.3] product life 
cycle says that a product will [0.2] be 
introduced into a market will grow gradually will mature [0.4] and then 
eventually decline [0.8] there's a [0.2] product life cycle that goes with a 
fad [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 [0.4] because 
they grow very quickly [0.6] but they decline very fast [1.6] as well as 
something like a fad [0.8] you can get examples of something which sells to a 
large amount of the market at a high price [0.5] if it's something that we 
aspire to [1.0] and a classic example of this does anybody here drink Schweppes 
Oasis [3.8] no [2.1] i know it's in the campus shop it was in the campus shop 
[0.4] and it also sells at the various other bars and so on [0.7] does anybody 
know by a chance what it costs [0.4] or what kind of price you'd expect to pay 
per bottle [0.8] 
sm1205: is it about seventy pence [0.8] 
nm1192: it might be now it was marginally more than that it was about a pound a 
bottle at one stage certainly [1.3] but it's relatively expensive compared to 
other [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 [0.8] when 
they actually entered the market with it when they launched it [0.4] they 
believed it was going to be a niche product [0.2] so they believed [0.2] that 
what they were trying to do was skim the market [0.3] and they were trying to 
be in that position there [0.3] when they were charging a high price [0.3] and 
they were going to get a small amount of the market that small amount of the 
market was going to be [0.9] probably male [1.6] probably [0.5] er [0.3] mid-
twenties to mid-thirties single [0.5] er [1.9] gone out for the evening [0.7] 
and [0.4] the driver for the evening so driving home [0.4] not able to drink 
much alcohol [0.7] doesn't want to [0.3] to be seen [0.2] drinking cans of Coke 
all evening [0.2] er and aspires maybe something a little bit more 
sophisticated so when they launched it into the market the idea was [0.3] that 
it was a sophisticated soft drink [0.6] and there's all kinds of background to 
that [0.6] we are apparently a soft [0.2] soft drinks generation [0.6] actually 
i'm i'm [0.6] i'm classing myself in the same generation as you i'm i was a 
sort drinks generation you're second generation soft drinks users [1.3] my 
parents' generation [1.1] as they got to adulthood they switched towards 
drinking tea and coffee [1.2] they didn't drink soft drinks [0.7] we've grown 
up with cans of Coke and cans of [0.5] Sprite and and Seven-up whatever else [0.
2] and we've got into the habit of drinking soft drinks and we continue to 
drink them [0.4] when we get to adulthood [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 [0.6] what kind of 
price do you pay for mineral water in a bar [2.6] it's ridiculous you can you 
can pay [0.3] two three pounds for a glass of mineral water [0.4] where you pay 
you know one-pound-fifty two pounds for a large bottle of mineral water in a 
supermarket [2.0] but that kind of market the the [0.3] drinking in the evening 
[0.2] adult sophisticated drinks [0.9] is quite a a premium priced skimming 
market [2.1] when Oasis launched that's where it thought it was going to be [0.
3] on pricing strategy [1.7] does anybody know what happened to it [2.8] does 
anybody know who drinks it [2.1] [laughter] well 
the answer is you're probably too old [0.7] er because although they thought 
they were going for twenty-five to thirty-five [0.4] er [1.2] reasonably 
sophisticated [0.8] males [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 [0.3] so they were putting it in in various [0.8] of the magazines not 
that they were just targeting males targeting females as well so they were 
putting it in [0.3] She and Mizz and and they put it on Capital Radio's Hall of 
Fame and various other types of advertising [0.5] and the people who saw it and 
the people who aspired to it [0.3] weren't the twenty-five to thirty-five year 
olds [0.2] they were the sixteen year olds [0.7] because the sixteen year olds 
thought it must be a sophisticated drink [0.6] and they weren't old enough to 
go out to bars and drink [0.5] so well [0.2] not officially [0.3] er [laughter] 
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 [0.6] for a pound per bottle [1.2] and what they actually ended up with 
was a high market share high priced product [0.7] and at one point in the U-K 
Oasis had seventy per cent market share [0.8] so it was massive [0.5] and 
Frutopia [0.6] and Snapple who were its rivals [0.2] basically Frutopia who's 
owned by Pepsi [0.3] pulled out of the market said i can't compete with this 
product [0.3] even though it's owned by a very big name [0.3] because they've 
got such market share [1.1] now what you're telling me [1.3] seems to be that 
that market is dying out of popularity too [0.2] but for a time at least [0.3] 
it achieved the virtually impossible position [0.3] of high market share and 
high price the ideal for all firms in terms of profit [1.4] the opposite end of 
the market [1.2] you get somebody who's got a low price and a low market share 
[1.4] and [0.3] my guy making [0.7] chest of drawers for the [0.2] the bathroom 
[0.3] at very low prices is probably in that [0.4] part of the market it's a 
niche [0.8] the niche [0.3] which is probably serving the declining market the 
end of the product life cycle [0.3] quite often [1.8] let me think 
what else would be in there then [0.2] if it's [0.5] serving declining markets 
[0.2] something like black and white television [0.5] would also be in that 
part of the pricing strategy something where [0.3] there aren't many people 
left who want to use it [0.2] but there are some [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 [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 [2.3] [laughter] i just it always 
sounds great if you're called innovator or a whatever else but being called a 
laggard somehow is bit kind of er [0.7] it's about as as good as being called a 
dog isn't it in the er [0.5] purely in in Boston Consultancy Group Matrix terms 
[1.6] [laughter] so there's a niche at that part of the market too [3.8] market 
orientated price index [2.2] it's to do with what price your competition are 
charging [1.0] apart from some rare examples one of which we've just had there 
with the mobile phones [0.2] you're going to want to cover your costs [3.6] 
there may be situations where [0.2] you've got to negotiate the margins [0.3] 
because all of this that we've talked about so far [0.8] is implying that 
you're dealing directly with your end customer [0.7] now the other parts of the 
the marketing mix that we're going to look at [0.2] next week we're going to 
talk about place [0.6] place actually [0.9] is largely about your distribution 
channels how you actually get your products [0.4] to the market [2.8] and if 
you're going via [0.8] a retail [0.2] multiple [0.6] if you're going via a car 
dealership [1.3] you may not able be able to set your prices [0.3] as you wish 
[0.4] so even if you're taking into account your quality [0.6] even if you're 
saying what are we offering the market [0.2] what are our competition doing [0.
2] what's our value [1.0] there's somebody else an intermediary between you [0.
4] and the customer [0.4] in this case if you're talking about something like 
food retailing [0.4] you're talking in the U-K about five chains who have 
eighty-something per cent of all the distribution of food [0.7] 
and clearly [0.4] as there's only five [0.6] firms who control all of that 
market they've got a lot of power [1.4] i used to work for Unilever [0.3] 
before i became an academic and er [0.9] it got to the stage where if those 
five firms didn't want to list your new product [0.9] when you actually w-, had 
an idea and you were going through the process of launching it in the market [0.
3] thought you may as well not introduce it [0.2] because you were left trying 
to get it listed by something like [0.3] ten to to fifteen per cent of the 
market [0.3] and you knew [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 [0.
3] you could at best get a niche position [0.5] so that was okay if it was a 
premium product [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 [2.4] if the [0.2] 
channel [0.5] wants to make the maximum margin [0.3] so Sainsbury's or Tesco's 
[0.2] want to make as much money as they can out of something like Schweppes 
Oasis [0.6] and also 
the firm making it wants to [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 [4.8] think back to the the competition [5.2] 
sm1206: maybe it would just undercut it [0.7] 
nm1192: sorry [0.2] 
sm1206: maybe it would just undercut it [0.6] 
nm1192: yeah well i mean basically what what you'd be doing is you'd be 
charging a lot more [0.7] for no apparent added value [0.7] because [0.3] in 
the channel [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 [0.
7] for no more value [0.5] people wouldn't buy it [0.3] and rightly as you say 
[0.4] if [1.0] there's competition between retail chains [1.1] if you both hang 
on to the fact that you want to make say twenty per cent margin for your 
product [0.5] a competitive chain can sell it cheaper [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 [0.2] chain's interest [0.6] what they have to do is be sensible 
in 
the negotiation of the margin [0.2] so to get and and quite often what happens 
is they have a price point that they have in mind [0.3] for a product [0.2] 
what they're going to sell it at [0.3] and they have to work back [0.9] how 
much profit each of the the people in the the channel are going to make [4.6] 
i'll just summarize the price quality relationship issues [7.1] what we're 
saying is there are different types of relationship between price and quality 
that you can have [1.5] if your quality is high [1.1] and your price is [0.2] 
is high [0.2] that is a classic premium strategy [0.7] so remember when we're 
talking about [0.3] competitive pricing we were saying [0.3] you couldn't 
charge a premium over and above competition [1.0] you can do that [0.4] if your 
quality is high [2.5] if you have medium quality [1.0] and you want to charge a 
high price [2.9] you you're in one of two positions you're either slightly 
overcharging [0.3] because if you're charging a very high price for something 
which is a a m-, a moderate quality [0.5] then you're slightly overcharging [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 [1.8] if you're charging a medium price [0.2] for very 
high quality [0.8] you get the opposite effect it's very good value [1.1] if 
for some bizarre chance [1.6] like the person making furniture for our bathroom 
[0.3] and basically because he doesn't [0.2] look at what the market's prepared 
to pay [0.4] you're actually offering very high quality [0.5] for a low price 
then what you're offering is a superb value strategy [3.0] as a matter of 
interest we actually went back to him and told us he ought to be charging us 
more [1.3] because we felt that [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 [0.6] er [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 [0.2] so there are people who are superb value [2.8] the opposite 
extreme [0.3] is [0.9] if you've got a poor quality [0.3] and you're charging a 
high price [0.6] that's a classic 
rip-off strategy [1.9] and i suppose you're sitting there thinking well you 
know when would that happen you you wouldn't buy would you [0.4] but there are 
instances when you would [1.0] have you ever been stuck in an airport [2.1] 
anybody been stuck in an airport anybody been stuck outside the station waiting 
for a taxi [1.4] you've missed the last bus or the last train [0.4] er it's 
raining [0.5] er and there's a taxi there [0.6] how price sensitive are you [1.
3] assuming you've got money sufficient money in your pocket you'll pay 
whatever you need to pay to get home [0.9] if you've been stuck in an airport 
for long enough and it's hot [0.5] you're waiting for your flight [0.5] and you 
want a drink [0.6] you'll go and you'll pay well over the odds for that that 
drink [0.4] that kind of [0.8] pricing strategy only works it's called 
opportunistic it only works [0.3] if they're not relying on somebody coming 
back to them again [1.8] so if they think they're never going to see you again 
[0.7] they can overcharge you they can rip you off [0.2] once [0.6] er [0.7] if 
you do that to a customer [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 [1.5] and of 
course in the middle of those you can s-, have [0.5] medium quality and and a 
high price is is sort of [0.2] poor value rather than a rip-off [0.4] er [1.3] 
that niche position we saw where you had a low market share and a low price [0.
4] for something like black and white television is is the economy end of the 
market [0.4] and there's also a niche of the market [0.4] in quite a lot of 
sectors so there's a niche [0.5] cheap car market [0.4] for Lada or or Skoda or 
whatever [0.2] there's a niche [0.3] er cheap food market for Kwik Save Aldi 
Netto and so on [0.2] so i-, in quite a lot of markets there is an economy [0.
4] position you can take as well as a premium position [0.5] if you go for an 
economy pricing strategy [0.4] it can only be on the basis really that you want 
to char-, you want to sell a lot of units [0.6] so you want to penetrate the 
market and make a profit in that way [2.0] okay we can leave it there for today 
thank you