Question

Can someone provide me a feedback on the discussion post below. This is a marketing management class. Thanks

I had a brief phone conversation with a general manager of Harley Davidson Orlando South J. Smiley

What is the company’s pricing objective? For this question

Maximum Current Profit

Many companies try to set a price that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment. This strategy assumes the firm knows its demand and cost functions; in reality, these are difficult to estimate. In emphasizing current performance, the company may sacrifice long-run performance by ignoring the effects of other marketing variables, competitors’ reactions, and legal restraints on price.

Product-Quality Leadership

A company might aim to be the product-quality leader in the market.33 Many brands strive to be “affordable luxuries”—products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach. Brands such as Starbucks, Aveda, Victoria’s Secret, BMW, and Viking have positioned themselves as quality leaders in their categories, combining quality, luxury, and premium prices with an intensely loyal customer base. Grey Goose and Absolut carved out a superpremium niche in the essentially odorless, colorless, and tasteless vodka category through clever on-premise and off-premise marketing that made the brands seem hip and exclusive.

How sensitive are the company’s target customers to changes in price? (I suggest that you give them options on this question such as “highly reactive to price changes,” “moderately sensitive to price changes,” and “low sensitivity to price changes.”)

Moderately sensitive to price changes

Do they have some target segments that are less price sensitive than others?

Yes being that Harley Davidson is a status brand and something people aspire to own, many feel that owning their Harley signifies having made it. And often it is a gift of joining the club and people of the retired and higher incomes are attracted. Higher set income tend to be less price sensitive

How much consideration does the company give to competitors’ prices when setting their own?

Harley Davidson sets the price to be followed by others

What method of pricing do they use to arrive at the final price for the customer? So after listening and paying attention to what J. Smiley had to say and just having dealt with Harley Davidson I think it very safe to say that the method of pricing they use is Percieved Value.

Answer 1

The Pricing strategy followed by Harley Davidson is based on the perceived value of the target customer segment and they follow an ultra-premium pricing policy. The strategy followed by Harley is to maintain its profits and deliver an excellent product that has been strategically positioned as the “Dream Bike”.

Their target customer segment: They target a niche upmarket, status-conscious customer who dreams to be part of the biking league by owning a Harley. The future target is a younger group who are already super rich with ivy league degrees and high net disposable income. They want to be seen as part of the Harley league. The organization has the challenge to give bikes which maintain and continue building the Harley fan following and same time ensure profits. The future customers who are yet to own a Harley would be interested in a little lower price and might get impacted by price changes but they can be offered financing options.

The pricing policy can be studied by discussing the marketing mix or the 4p’s as follows:

• Product: The make products with a “Wow factor”. It is a mean sturdy machine which is a legend and is bought for its Unique design and technology. They have carved a niche super-premium market with an excellent product which is customized and gives an image of being rugged and different. It is a dream bike every biker would love to own.
• Pricing: Ultra-premium pricing, which creates the prime positioning of the product in the consumer's mind.   The current pricing strategy is “Premium pricing” which is the price a consumer pays for the perceived value of owning the product. It adds to their status and sets them apart from the crowd. This is possible as they have made a product which is different from any bike in the league and they can demand a special price for it. The existing loyal consumers are affected by the price increase and are not impacted by the price change.
• Place: They are available across the globe and provide premium service to their customers. They are located in exclusive Harley stores and in upmarket areas. Besides the bike, they sell a lot of Harley accessories and products which enhance the image of the brand and make customers feel special. They follow a policy of selective distribution and a strategy of being available where ever their customers are.
• Promotion: They follow subtle methods of promotions and promote a product by glorifying them in movies and shows. They have a Harley owners groups which promote biking trips, creating brand loyalty. They set themselves apart through their product and promote by focusing on building the aura around the product. They promote bike ride tours, cross country marathon etc.

To sum it up the price of Harley is not connected to the cost of manufacturing but the cost of owning a Harley. The product commands a premium price and it has no relation to its manufacturing cost, its cost of owning the brand and being part of the league. Harley does not consider anyone as competition as a person wanting a Harley will buy a Harley.