Harvard Case - Hanson Production: Pricing for Opening Day
"Hanson Production: Pricing for Opening Day" Harvard business case study is written by June Cotte, Peter Famiglietti. It deals with the challenges in the field of Marketing. The case study is 14 page(s) long and it was first published on : May 20, 2010
At Fern Fort University, we recommend a tiered pricing strategy for Hanson Production's opening day, utilizing a combination of introductory discounts, value-based pricing, and premium options. This approach aims to maximize revenue, build brand loyalty, and establish a strong market presence.
2. Background
Hanson Production, a start-up specializing in custom-designed, high-quality furniture, is preparing for its grand opening. The company faces the challenge of attracting customers and establishing a price point that balances profitability with market competitiveness. The key protagonist is John Hanson, the founder and CEO, who needs to determine the optimal pricing strategy for his opening day.
3. Analysis of the Case Study
To analyze Hanson Production's situation, we apply the following frameworks:
a) SWOT Analysis:
- Strengths: High-quality craftsmanship, unique designs, strong customer service, passionate founder.
- Weaknesses: Limited brand awareness, lack of established pricing structure, reliance on word-of-mouth marketing.
- Opportunities: Growing demand for custom furniture, potential for online sales, untapped market segments.
- Threats: Competition from established furniture retailers, economic downturn, fluctuations in material costs.
b) Porter's Five Forces:
- Threat of New Entrants: Moderate, due to the capital investment required for production and design expertise.
- Bargaining Power of Buyers: High, as customers have various options and can easily compare prices.
- Threat of Substitutes: Moderate, as customers can choose mass-produced furniture or DIY options.
- Bargaining Power of Suppliers: Low, as materials are readily available from multiple suppliers.
- Rivalry Among Existing Competitors: High, due to the presence of established furniture retailers and online marketplaces.
c) Consumer Behavior Analysis:
- Target Market: Hanson Production targets affluent customers seeking unique, high-quality furniture.
- Buying Motives: Customers value craftsmanship, aesthetics, and personalized design.
- Price Sensitivity: Customers are willing to pay a premium for quality and exclusivity, but are still price-conscious.
4. Recommendations
a) Tiered Pricing Strategy:
- Introductory Discounts: Offer a 10% discount on all purchases during the first week of opening, attracting early adopters and generating buzz.
- Value-Based Pricing: Implement a pricing structure based on the perceived value of the furniture, considering factors like materials, craftsmanship, and design complexity.
- Premium Options: Offer premium customization options, such as bespoke materials and finishes, at a higher price point, catering to customers seeking exclusivity.
b) Marketing Strategy:
- Brand Positioning: Position Hanson Production as a provider of handcrafted, bespoke furniture, emphasizing quality, design, and customer service.
- Marketing Channels: Utilize a multi-channel approach, including social media, online advertising, local partnerships, and public relations.
- Content Marketing: Create engaging content showcasing the design process, craftsmanship, and customer testimonials.
- Event Marketing: Host a grand opening event with demonstrations, refreshments, and special offers.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Hanson Production's core competency lies in its craftsmanship and design expertise. The tiered pricing strategy allows for leveraging this strength by catering to different customer segments.
- External Customers: The target market values quality, uniqueness, and personalization. The pricing strategy and marketing efforts are aligned with these customer needs.
- Competitors: The tiered pricing strategy helps Hanson Production differentiate from mass-market retailers while remaining competitive with other custom furniture makers.
- Attractiveness: The pricing strategy is expected to generate strong revenue and build brand loyalty, contributing to long-term profitability.
6. Conclusion
By implementing a tiered pricing strategy, Hanson Production can effectively attract customers, establish a competitive price point, and build a strong brand identity. This approach will allow the company to capitalize on its strengths, address the needs of its target market, and navigate the competitive landscape.
7. Discussion
Alternatives:
- Uniform Pricing: A single price for all furniture items, regardless of design complexity. This approach would be simpler to manage but could limit revenue potential and appeal to a narrower customer base.
- Cost-Plus Pricing: Setting prices based on production costs plus a markup. This approach could lead to underpricing if the market is willing to pay more for the perceived value.
Risks:
- Price Sensitivity: Customers may be hesitant to pay a premium for custom furniture, especially during an economic downturn.
- Competition: Established retailers may offer competitive pricing or discounts, potentially impacting Hanson Production's market share.
Key Assumptions:
- The market demand for custom furniture will continue to grow.
- Hanson Production can maintain its high-quality craftsmanship and design standards.
- The marketing efforts will be effective in reaching the target market.
8. Next Steps
Timeline:
- Month 1: Implement tiered pricing strategy and launch marketing campaign.
- Month 2: Monitor customer response and adjust pricing and marketing strategies as needed.
- Month 3: Evaluate the effectiveness of the pricing and marketing strategies and make further adjustments.
Key Milestones:
- Achieve a target customer acquisition rate during the grand opening week.
- Generate positive customer reviews and testimonials.
- Establish a strong online presence through social media and website.
By following these recommendations and implementing a well-defined strategy, Hanson Production can achieve its goals and establish a successful business in the custom furniture market.
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Case Description
The president of production at Hanson Productions, an off-Broadway production company, was faced with the same situation for every Broadway production: where to locate, how many seats, what to charge and how to promote and market the production. There are three separate venues, with three separate value propositions to the studio, case and audience. While bigger means more seats and more revenue for each show, there is a capacity percentage that must be factored in to the decision due to the increased rental costs. Smaller venues may lead to higher capacity percentages, but ultimately leave money on the table. The ticket prices must be set for advance sales; any change in price after this period will effectively hurt future sales - more so if the price is discounted. Determining a promotion partner may lessen the risk of a potential failure, yet cost more profit and affect the recoup schedule.
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