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Principles of Pricing Strategy

Pricing strategies and tactics

The Segway was launched at an initial price of 3000$. This was considered a penetration price since the product was in a relatively new market area and competition was not yet well developed. There were no major competitive companies. The company that launched Segway intended to position its self properly in the market and try again as much share as possible. This was done with the prevision to become a “cash cow” in the future. Since the product was a new invention and transportation needs for people were evolving, it was assumed that a price neither too high, nor too low (the “penetration price” from), will gain the product a good position in the market. How was this done?

The pricing strategy was based mostly on external factors rather than internal ones. At least at the beginning of the product launch. In marketing, these external factors are the ones that are most difficult to apprehend and foresee. But the Segway HT was seen as the machine that everybody was waiting for and that was a response to these external factors, people’s desires, and way of thinking. As described by Amy Harmon writing in the New York Times, the product was seen by the population as “a transportation choice that fills the niche between walking and driving”, and that:

“The Segway HT could cause cities to be redesigned, help wean the world from oil dependence, compress time and space for pedestrians and raise productivity for corporations and government agencies” (Harmon, 2001).

This is a very important statement to make in marketing. If your product is the one that people have years that are looking for and that fulfills their needs and desires then you surely are going to succeed. Your pricing strategy should follow this line also. And in fact, the price was set at 3000$. But things did not go the way marketers had hoped to. By the year 2003, sales were reported to have reached six thousand units. This report showed the company was far short of the expected sales figures of 50,000 to 100,000 when all sold Segways were recalled, (Kawamoto, 2003). This was exactly just a little more than 10% of the minimum expectancy rate. In this situation, they had to cut the price down in order to cover the costs of production. One of the major internal factors affecting the pricing of the product is “return of investment” (Paul 47). They had to cut costs in order to boost sales.

This event showed that it was a mistake to produce so many units of Segway within such a short time. Especially when you do not know what will be the market behavior toward your product. This is the main problem of the external factors in pricing decision-making. You cannot predict them with 100% certainty. The company expected the market to react very differently. They thought that the commodity of the machine they were offering would suffice to convince people to purchase it. Also, the setting of a price relatively medium, neither high nor too low, would attract more customers. But the sale figures of 2003 showed them wrong and they had tens of thousands of produced units in stock. In order to meet the “return of investment” criteria and cash flow, they decided to cut the price, hoping that people would be more attracted to the product.

Competitive advantage

If we search on eBay today, we will find the Segway HD machines to be valued at a monetary price of 4,998$. This price is two-thirds, 66.66%, higher than the starting price in 2001 and much higher regarding the 2003 price decrease. What happened that changed the situation? The answer is still in the external factor of marketing for price setting that we have been discussing. During these years one important factor changed: human understanding of the environment. Especially, people’s evaluation and thinking about the danger of environmental pollution. Even during the presidential campaign, it was mentioned several times that global warming and environmental pollution were becoming a serious problem. This was in favor of the Segway machine, which did not release any waste that could potentially pollute the environment. Another external factor that changed during this period was the global rise in oil prices. In 2008, it was much more expensive to maintain a fuel-engine vehicle. This was in favor of the use of Segway which required no fuel to power its engines. And these were the main competitive advantages this product has over the competition.

References

Kawamoto, D. (2003). Segway sales haven’t transported maker at News.com.

techsoc.org (2008). Today in Technology History at techsoc.org.

Christ, P. (2008). Principles of Marketing.

Kanellos, M. (2001) More Ginger details may be coming at News.com.