Question

• Please provide your responses for the following pricing strategy scenarios as practiced in corporate world. Make sure your analysis is well grounded in theories and concepts related to pricing decision making. (150 to 200 words each)

• The Subway sandwich chain was not fully satisfied with the initial performance of its line of healthful fast foods, which were more expensive than alternatives offered by McDonald's and other competitors. But the company was able to boost sales by obtaining an American Heart Association endorsement for its products. Explain this move in terms of perceived value (PV).

• Traditional newspapers have lost millions of subscribers for free news websites. Instead of providing its own content at no charge, the New York Times and Company erected a pay wall-in other words, readers must pay to access most of its newspaper's stories. Explain this issue as a price customization strategy.

• Many consumers are willing to pay a significantly higher price for Perdue chicken for no-name supermarket poultry. This is a testament to the company's success in differentiating its product as being of higher quality than generic brands. Which general price indicators of price sensitivity are illustrated by Perdue's ability to command a high price?

Answer 1

Subway healthful range :

The health food product line was priced above the competitors prices leading to price-sensitive customers choosing to go with lower-priced products at McDonald's and others. The endorsement from a known and approved health organisaton such as AMA provided an endorsement that customers could tangibly see and this helped raise the perceived value of the products - if the AMA endorses these then they must indeed be good for the heart. Marketing for these products now changed to include a more visible value that the products would bring taking them from being just 'generally good for health' to 'definitely good for your heart'. This increase in the perceived value of the products ensured that more customers now didn't mind paying a higher/premium price for the same products thus boosting sales.

NY times online newspaper :

Price customisation is a way to make a profit by satisfying customers' needs. This strategy has been adopted by NY times by offering various pricing options for their products to their customer base - which includes customers who value responsible journalism over free news websites (which might not be entirely accurate or truthful) and who now want their news available online. There are multiple options to choose from such as digital+print, student rates, online content only which are designed to appeal to more customer groups, the student rates especially is created as a way to entice a more price-sensitive section of the market that could turn into potential long-term users. There is also an introductory rate for a year for the more price-sensitive non-student group to try out the service initially. By customising the product pricing for various customer types, NY times has found a way to appeal to a wider customer base that is now likely to find at least one pricing option that suits their requirements.  

Perdue chicken vs. no-name poultry

In every industry there are likely to be some no-name businesses that can under-price their branded competitors. While these can initially attract a larger section of a price-sensitive customer base, buyers could switch to a higher-cost alternative if they think it offers higher quality. Brands like Perdue market themselves as differentiated by quality, stressing to the customers that they value quality and this additional effort at providing better quality products is why the higher price is justified. Branding and brand recognition also go a long way to reducing customers' price-sensitivity. Generic or no-brand products are perceived as likely to be of inferior quality and are not considered an equal substitute for branded products which are likely to ensure quality standards as a way to preserve their brand. As there are no switching costs in going from buying no-name to Perdue, this can further play into Perdue's favour.