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Kamikaze Pricing

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Lauren Schoenfeld

on 29 May 2014

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Transcript of Kamikaze Pricing

Penetration Strategy
The most abused pricing strategy
Launch low-priced product - Goal:
securing market share
, then gradually increase price
Effective for
fixed periods of time
and in
certain competitive situations
3 Pricing Strategies
Value Pricing: Opportunities to Add Value
Know what customers want
Identify features that they can add more cost effectively than competitors
Value achieved from services, not just the product
Offer complete benefits
Useful in early stages of new product's life
Understand customer agendas
Customers want different things
Must understand why customers buy products
Offer the best deal
Value buying assumes that customers get the best deal possible
Value Pricing Example
Kindle Fire
Kamikaze Pricing
The Five Cs of the Value-Based Approach
To avoid the rigors of price-based competition, marketers should adopt:
Comprehend what drives customer value
Create value in product, service, and support
Communicate value in advertising
Convince customers of value in selling
Capture value in pricing strategy

- price
relative to product's value and prices of similar competitors
To determine each strategy's success:
Current and potential cost structure
Customers' relative price sensitivities
Current and potential competitors
"The main ingredient to successful penetration pricing is a large segment of customers for whom


is the

primary purchase motivation
Situation #1
When the penetration-pricing firm has enough of
a cost or resource advantage
might conclude they would
lose in a price war
Situation #2

Cost and route structure
United Airlines had to abandon their low-cost effort because they
couldn't match Southwest's cost structure
2 Situations that Cause Competitors to let Penetration Pricers Co-exist
Why do they use Penetration Strategy?
Able to manage their overhead and distribution costs much more tightly than dept stores
Competitors cannot
Kamikaze Pricing
Extreme form of penetration pricing
The relentless pursuit of more sales through lower pricing
Results in lower profitability
Often unnecessary and fruitless
The more aggressive the price competition, the less return on investment
Winning too many pricing battles results in a loss of profitability
When large competitors have high-price positions and
don't feel a significant number of their existing customers would be lost
to the penetration pricer
"Key element of their strategy: Focus only on
price sensitive travelers
selling tickets to the
customers of their competition

People's Express
Fares reflected reduced services
Major airlines did not respond until People's attempted to take high value business customers
Penetration Pricing is overused because managers think in terms of sports
Wrong motivation for pricing: objective is to
win the game
the more intense competition--> few survive and few make ROI
Correct motivation for pricing: objective is
must consider long-term implications of each pricing battle
Winning pricing battles does not mean that you win the war for Profitability
Primary Value to Marketers
Instantly and comfortably access media on the go
Integrated personal tech support, easy to read and view in the sun, full access to Amazon products and services, downloadable content to view without wi-fi.
Show the high quality of their product in advertising
Give customers a reference point by comparing to iPad.
Show that they deliver superior product AND price.
More sustainable advantages to use Value Pricing

- price
relative to competitors and product's value

- pricing
neither high nor low
relative to competitors (attempt to eliminate price as decision factor for customers)
Use price as the main competitive weapon - drive company to dominate market
Firms are
forced to lower prices
, -->
diminishing ROI
Smaller pieces of the pie
When penetration strategies run amok, marketers can find themselves in a dive-bomb of no return.
Full transcript