There was strong reliance on the positive media response to the product before its launch that no market studies were made to determine the extent of pick-up of the product by consumers, given its $3,000 price. This proved to be a crucial lapse since the company targeted mass marketing but employed premium pricing and failed to consider possible public responses to this pricing strategy. The importance of marketing studies was already an apparent lesson in the failure of the C5 electric car in 1985 because expected consumer uptake of the product concept and its price are crucial information in marketing strategies.
In addition, there was no indication or communication of the relationship between the price set for Segway and its innovative components, which could have justified the price to consumers. The components of price are the total cost of production plus markup to give way for profit (Schewe & Hiam, 1998). However, there was no indication that the price of the Segway reflected the cost involved in its production plus a reasonable markup for profit. This does not help in making consumers perceive the value of Segway as equivalent to its price.
Moreover, if the Segway did cost much to develop, there are ways of getting back the cost of product development, especially of the target is mass marketing. Determining the appropriate price depends on a number of factors that requires balance. First encompasses the direct and indirect costs of developing and manufacturing the product. Second is the price that consumers are willing to pay for the product. Third is the price of competing products, which in the case of Segway are close substitutes such as skateboard and scooter.
Fourth is the targeted profit margin. Balancing these factors mean that in the product pricing formula, the price per unit would be total price divided the number of units produced. (Schewe & Hiam, 1998) If the company expected to sell at least 50,000 units in the first year and anticipated production of this number of units, then the price could be lesser than 3,000 because of a higher divisor. However, since the price is high, either total cost is very high or the company expected a very high profit margin.
Of the two reasons, total cost cannot be that high since, product development and initial prototypes were made at home. The company also did not spend anything on advertising or any other form of promotions. Even if the total cost was high, a producer never expects to achieve break even in just the first months, especially so, for a new technological product as Segway. If Segway was initially sold at a lower price, then it could have fetched higher sales allowing the company to get back all expenses for production development and production in the first year.
Place or Distribution The primary distribution channel for Segway is online, primarily through Amazon. com (Reuters, 2001). Although the Internet has become an effective channel for distribution, people would have difficulty buying a new motorized travel gadget on the Internet without the opportunity to see, touch, feel, test the product, and satiate all questions they have about the product. With an unclear product concept, relying on the curiosity of customers is not enough to make a sale. Then again, it boils down again to the price.
Purchasing a high priced product such as Segway is a huge risk, even with refund options. Promotion Promotion encompasses the different facets of marketing communication or the provision of information to consumers about the product and its value to consumers (Armstrong & Kotler, 2005). The goal of marketing communication is to generate the expected customer response, which in the case of Segway is actual purchase. However, communications of the value of Segway relative to its price was unclear perhaps due to the focus on mass marketing. Recommended Pricing and Marketing Strategies
The company could have rationalized the price to meet what customers are willing to pay, clarify the product concept to target a particular market segment or a number of selected segments, use a wider distribution channel including sales in widely accessible shops, and improve marketing communications to express clearly the value of Segway to the target consumers. Conclusion Balancing or harmonizing the components of the marketing mix is the key to a successful marketing strategy. Pricing should be effective and sound.
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