Watch the deals that retailers offer during the Christmas season. They find ever more creative ways to get us into their stores and shopping. I want to note a couple of these creative ways.
But first a bit of context. A price has four typical components: the package of benefits the product or service offers the list price, the basis of charge for the product (i.e. the unit in the dollars per unit in the list price) and, usually, some optional components of price. The optional components of price are helpful to companies who want to change the effective pricing for a customer. The retailers in this note are making creative use of some optional components of price.
The first example is the use of price to get people into stores by offering them a particular deal. Sometimes these are simply Loss Leader products, for example, offering very inexpensive bread and milk sold at the back of a grocery store in order to get a shopper in to buy other products at the store. So, one optional component of price is a Loss Leader product. Here is a creative twist. Offer the Loss Leader product in a “flash sale” with a very limited time frame. For example:
* Penney’s ran flash sales called “7 Hour Steals” offering towels for $3.69 that normally sell for $7.99 and 70% off gold and sterling silver jewelry.
* Banana Republic stores offered 40% off full-priced sweaters from 11 a.m. to 2 p.m.
Other optional components of price encourage multiple purchases. One way to do this is to offer discounts on all sales above a given purchase price. For example, a company might offer 20% off for all purchases above $50. A more creative, and aggressive, approach is to offer discounts that increase with the money spent. For example, a company might offer 20% off on a $50 purchase, an additional 20% off all purchases from $50 to $75 and a final 20% off on all purchases over $75. According to consumer research, many consumers would assume that they get a total of 60% off on all purchases over $75 with this offer. In fact, they get about 49% off on their total purchases. Still, a compelling deal.
In our study of several thousand pricing initiatives, we have found many of these optional components of price. They enable a company to improve its market share and margins in any price environment. These are available at StrategyStreet/Improve/Pricing/Innovation Ideas.
Showing posts with label Banana Republic. Show all posts
Showing posts with label Banana Republic. Show all posts
Monday, January 3, 2011
Tuesday, June 8, 2010
Can a High End Guy Hit the Mass Market?
Starbucks is a high-end competitor in the fast food industry. We call these high-end competitors Performance Leaders (see “Audio Tip #82: Performance Leader Products and Companies” on StrategyStreet.com). As individuals, these Performance Leaders almost always have small market shares. Starbucks has 4% of the U.S. market for brewed coffee. As a group, Performance Leader market shares usually fall below 15% of a total market. Sometimes these Performance Leaders, following the allure of the volume in the mass market, create products to enter the mass market. We call the competitors who serve the mass market as their primary function Standard Leaders. Standard Leaders control the majority of most markets.
Starbucks has decided to enter the Standard Leader product category with its Seattle’s Best coffee. This coffee brand, and its coffee beans, sell today in Border’s Book Stores and many supermarkets. Starbucks wants to sell the product in fast food outlets, coffee houses and even in vending machines. By expanding the Seattle’s Best Coffee franchise, Starbucks hopes to land a blow to slow the invasion of McDonalds and Dunkin’ Donuts into the specialty coffee market. These latter firms are Standard Leaders who offer espresso-based coffee drinks at lower prices than Starbucks.
It is very common for a Standard Leader to enter the high-end Performance Leader product category with its own brand, as McDonalds and Dunkin’ Donuts has done. (See “Audio Tip #60: Customer Segmentation by Needs” on StrategyStreet.com.) The list of Standard Leaders who enter the Performance Leader product category is almost as long as the list of Standard Leaders. Think of Toyota and Lexus, Dell and Alienware Computers, Marriott and the Ritz Hotel chain, Gap and Banana Republic, among others. Many Standard Leaders discover, as their industries mature, that they must offer Performance Leader products, and sometimes low-end, Price Leader, products in order to offer a full line of products for their end users or channels of distribution.
It is much less common for a Performance Leader company to enter the Standard Leader product category, as Starbucks plans. This is a much tougher initiative. The Standard Leader category sells to much different consumers with different value propositions and significantly higher demands for economies of scale. Apple tried this Standard Leader entry several years ago and backed off in the face of withering competition from Windows-based computer makers. Some Performance Leaders have succeeded, at least to some extent. Harley-Davison offers the Buell motorcycle. Pella offers windows through large hardware and lumber stores. American Express has succeeded in offering a credit card. Years ago, Marriott, while still a Performance Leader, entered the Standard Leader price point with Courtyard and the Price Leader price point with Fairfield Inn.
It can be done, but it is a daunting task. Most Performance Leaders stay strictly Performance Leaders. For example, one company with some similarity to Starbucks is Samuel Adams. That company has yet to offer a Samuel Adams Standard Leader product.
Starbucks has decided to enter the Standard Leader product category with its Seattle’s Best coffee. This coffee brand, and its coffee beans, sell today in Border’s Book Stores and many supermarkets. Starbucks wants to sell the product in fast food outlets, coffee houses and even in vending machines. By expanding the Seattle’s Best Coffee franchise, Starbucks hopes to land a blow to slow the invasion of McDonalds and Dunkin’ Donuts into the specialty coffee market. These latter firms are Standard Leaders who offer espresso-based coffee drinks at lower prices than Starbucks.
It is very common for a Standard Leader to enter the high-end Performance Leader product category with its own brand, as McDonalds and Dunkin’ Donuts has done. (See “Audio Tip #60: Customer Segmentation by Needs” on StrategyStreet.com.) The list of Standard Leaders who enter the Performance Leader product category is almost as long as the list of Standard Leaders. Think of Toyota and Lexus, Dell and Alienware Computers, Marriott and the Ritz Hotel chain, Gap and Banana Republic, among others. Many Standard Leaders discover, as their industries mature, that they must offer Performance Leader products, and sometimes low-end, Price Leader, products in order to offer a full line of products for their end users or channels of distribution.
It is much less common for a Performance Leader company to enter the Standard Leader product category, as Starbucks plans. This is a much tougher initiative. The Standard Leader category sells to much different consumers with different value propositions and significantly higher demands for economies of scale. Apple tried this Standard Leader entry several years ago and backed off in the face of withering competition from Windows-based computer makers. Some Performance Leaders have succeeded, at least to some extent. Harley-Davison offers the Buell motorcycle. Pella offers windows through large hardware and lumber stores. American Express has succeeded in offering a credit card. Years ago, Marriott, while still a Performance Leader, entered the Standard Leader price point with Courtyard and the Price Leader price point with Fairfield Inn.
It can be done, but it is a daunting task. Most Performance Leaders stay strictly Performance Leaders. For example, one company with some similarity to Starbucks is Samuel Adams. That company has yet to offer a Samuel Adams Standard Leader product.
Tuesday, September 8, 2009
Membership Privileges
The snow skiing season is still a few months away. Still, in preparation for the upcoming season, the ski equipment promotions are underway. One of my favorites comes from Granite Chief. This is a fine retailer of ski equipment in Truckee, California. Each year, the company makes an offer to its customers: Purchase your Ski Service Card by August 31st for $100 and you will have a credit balance for $200 to be used on any of the company’s repair, mounting, tuning and boot-fitting services. Each time the card holder has equipment serviced by the store, Granite Chief will deduct the labor cost from the customer’s Ski Service Card credit. The credit is good only for labor. Any unused balances are not refundable and will not be carried over to the next season. The card expires on May 31, 2010.
This is a common approach to discounting (see Video #43: Four Simple Pricing Rules in Hostile Markets on StrategyStreet.com). The trick with a discount is to limit the customer segments who qualify for the discount. In this case, the store limits the discount to those who purchase a membership card. The store, then, further limits the discount to a total dollar amount.
We have seen many examples of club member discounts over the years. These discounts go to customers who have a particular relationship with the company. In some cases, the relationship is that of employee. For example, Delta subsidized new computers for its employees in a program it sponsored with PeoplePC. In other cases, the relationship is a bit looser. These are often “friends and family” programs that extend discounts to chosen customers. For example, recently Saks offered 25% off to “friends and family.” In a similar program, Banana Republic offered 25% off to its “friends and family” holiday shoppers. The codes for this discount program circulated by email on the internet. Not exactly exclusive, was it?
The Granite Chief program is an example of the second type of club member program. These programs offer discounts to members of company-sponsored clubs or affinity programs. Here the company is more specific in the definition of the customers who qualify for the discount. Programs falling into this category include frequent shopper cards offered by grocery stores. In another example, Chico’s, the apparel retailer, offered its best customers membership in the Passport Club. This club offered a permanent 5% discount for every $500 the customer spends.
All of these club member discount programs increase total sales and confirm customer loyalty. For more on approaches to discount products in ways that limit the discount to select customers, please see StrategyStreet/Improve/Pricing/Brainstorming Ideas/Change the Components of the Price.
This is a common approach to discounting (see Video #43: Four Simple Pricing Rules in Hostile Markets on StrategyStreet.com). The trick with a discount is to limit the customer segments who qualify for the discount. In this case, the store limits the discount to those who purchase a membership card. The store, then, further limits the discount to a total dollar amount.
We have seen many examples of club member discounts over the years. These discounts go to customers who have a particular relationship with the company. In some cases, the relationship is that of employee. For example, Delta subsidized new computers for its employees in a program it sponsored with PeoplePC. In other cases, the relationship is a bit looser. These are often “friends and family” programs that extend discounts to chosen customers. For example, recently Saks offered 25% off to “friends and family.” In a similar program, Banana Republic offered 25% off to its “friends and family” holiday shoppers. The codes for this discount program circulated by email on the internet. Not exactly exclusive, was it?
The Granite Chief program is an example of the second type of club member program. These programs offer discounts to members of company-sponsored clubs or affinity programs. Here the company is more specific in the definition of the customers who qualify for the discount. Programs falling into this category include frequent shopper cards offered by grocery stores. In another example, Chico’s, the apparel retailer, offered its best customers membership in the Passport Club. This club offered a permanent 5% discount for every $500 the customer spends.
All of these club member discount programs increase total sales and confirm customer loyalty. For more on approaches to discount products in ways that limit the discount to select customers, please see StrategyStreet/Improve/Pricing/Brainstorming Ideas/Change the Components of the Price.
Subscribe to:
Posts (Atom)
>
