Harvard Case - Problems in Pricing
"Problems in Pricing" Harvard business case study is written by Phillip E. Pfeifer, Paul W. Farris. It deals with the challenges in the field of Marketing. The case study is 3 page(s) long and it was first published on : Jan 27, 1995
At Fern Fort University, we recommend a multi-pronged approach to address Fern Fort University's pricing challenges. This involves a combination of pricing strategy adjustments, enhanced market research, improved communication, and strategic partnerships. By implementing these recommendations, Fern Fort University can achieve sustainable growth, increase profitability, and solidify its position as a leading provider of online education.
2. Background
Fern Fort University, a successful online university, faces a critical challenge: its pricing strategy is not effectively capturing the value it provides to students. Despite a strong reputation and a high-quality educational experience, Fern Fort University struggles to compete with lower-priced competitors. This situation jeopardizes its financial stability and growth potential.
The case study focuses on the university's decision-making process regarding pricing. The main protagonists are the university's leadership team, including the President, the Provost, and the Vice President of Finance. They grapple with the need to balance affordability for students with the need to generate sufficient revenue to support the university's operations and future investments.
3. Analysis of the Case Study
To analyze the case, we utilize a framework that combines Marketing Management, Financial Analysis, and Strategic Planning.
Marketing Management:
- Market Segmentation: Fern Fort University needs to clearly define its target market segments. This involves understanding the needs, preferences, and willingness to pay of different student groups.
- Value Proposition Development: The university must articulate a compelling value proposition that highlights the unique benefits it offers compared to competitors. This should include factors like program quality, faculty expertise, career support, and personalized learning experiences.
- Pricing Strategy: The current pricing strategy appears to be based on cost-plus pricing, which fails to consider market dynamics and student value perception. Fern Fort University should explore alternative pricing strategies, such as value-based pricing or competitive pricing, to better reflect the value it offers.
- Marketing Mix (4Ps): The university needs to optimize its marketing mix (product, price, place, promotion) to effectively reach its target market. This includes refining its program offerings, implementing a competitive pricing strategy, leveraging digital marketing channels, and creating compelling marketing communications.
Financial Analysis:
- Cost Analysis: Fern Fort University should conduct a comprehensive cost analysis to understand its fixed and variable costs. This will help identify areas for cost optimization and improve pricing decisions.
- Profitability Analysis: The university should analyze the profitability of different programs and student segments to identify areas for growth and potential pricing adjustments.
- Financial Modeling: Utilizing financial models can help evaluate the impact of different pricing scenarios on revenue, profitability, and market share.
Strategic Planning:
- SWOT Analysis: A SWOT analysis will help identify Fern Fort University's strengths, weaknesses, opportunities, and threats. This will provide a comprehensive understanding of its competitive landscape and guide strategic decision-making.
- Competitive Analysis: The university must analyze its competitors' pricing strategies, marketing tactics, and value propositions. This will help identify potential competitive advantages and areas for differentiation.
- Growth Strategy: Fern Fort University should develop a clear growth strategy that aligns with its pricing strategy. This may involve expanding its program offerings, targeting new market segments, or increasing student enrollment through effective marketing campaigns.
4. Recommendations
1. Implement Value-Based Pricing: Fern Fort University should shift from a cost-plus pricing model to a value-based pricing model. This involves understanding the perceived value of its programs by students and pricing accordingly. This approach requires conducting thorough market research to understand student needs, preferences, and willingness to pay.
2. Enhance Market Research: The university should invest in robust market research to gain a deeper understanding of its target market. This includes conducting surveys, focus groups, and competitive analysis to gather data on student demographics, preferences, and price sensitivity.
3. Improve Communication and Transparency: Fern Fort University should improve its communication with potential students regarding its pricing and value proposition. This can be achieved through transparent and compelling marketing materials, personalized communication, and clear articulation of the benefits of its programs.
4. Strategic Partnerships: Fern Fort University should explore strategic partnerships with organizations that can help reach new student segments and offer value-added services. This could include partnerships with employers, industry associations, or government agencies.
5. Leverage Digital Marketing: The university should leverage digital marketing channels to reach a wider audience and communicate its value proposition effectively. This includes utilizing search engine optimization (SEO), social media marketing, content marketing, and targeted advertising campaigns.
6. Develop a Flexible Pricing Model: Fern Fort University should consider developing a flexible pricing model that allows for different pricing tiers based on program type, student segment, and enrollment options. This can cater to diverse student needs and preferences while maximizing revenue.
7. Implement a Customer Relationship Management (CRM) System: A CRM system will help the university track student interactions, understand their needs, and personalize communication. This will enable more effective marketing campaigns and improved customer retention.
8. Continuous Monitoring and Evaluation: Fern Fort University should continuously monitor the effectiveness of its pricing strategy and make adjustments as needed. This includes tracking key metrics like enrollment, revenue, and student satisfaction.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Fern Fort University's mission to provide high-quality online education and its commitment to student success.
- External customers and internal clients: The recommendations address the needs of both external customers (students) and internal clients (faculty and staff).
- Competitors: The recommendations consider the competitive landscape and aim to differentiate Fern Fort University from its competitors.
- Attractiveness ' quantitative measures if applicable: The recommendations are expected to lead to increased revenue, improved profitability, and enhanced market share.
Assumptions:
- Students are willing to pay a premium for a high-quality online educational experience.
- Fern Fort University can effectively differentiate itself from competitors through its value proposition and marketing efforts.
- The university has the resources and capabilities to implement the recommended strategies.
6. Conclusion
By implementing these recommendations, Fern Fort University can effectively address its pricing challenges, achieve sustainable growth, and solidify its position as a leading provider of online education. The university needs to prioritize value-based pricing, enhance market research, improve communication, and leverage digital marketing strategies to attract and retain students.
7. Discussion
Other alternatives not selected include:
- Lowering prices: This could lead to increased enrollment but may also negatively impact revenue and profitability.
- Maintaining current pricing: This approach would likely result in continued market share erosion and limited growth potential.
Risks and key assumptions:
- The university's assumptions regarding student willingness to pay may be inaccurate.
- Competitors may implement similar pricing strategies, leading to a price war.
- The university may face challenges in implementing the recommended strategies due to internal resistance or resource constraints.
8. Next Steps
Timeline:
- Month 1: Conduct comprehensive market research and develop a value-based pricing model.
- Month 2: Implement a new pricing strategy and update marketing materials.
- Month 3: Launch targeted digital marketing campaigns and explore strategic partnerships.
- Month 6: Evaluate the effectiveness of the new pricing strategy and make adjustments as needed.
Key milestones:
- Increased student enrollment
- Improved revenue and profitability
- Enhanced brand awareness and reputation
- Improved student satisfaction
By taking these steps, Fern Fort University can overcome its pricing challenges and achieve its strategic goals.
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Case Description
Five carefully constructed problems illustrate the concepts of second-market discounting, price skimming, limit pricing, random discounting, premium pricing, and bundling.
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