Online music pricing strategies and the rise of personal music players

Innovation and pricing are concepts that the manufactures and service providers should focus on. This paper focuses on how value is created on various products and services highlighting on the impacts value addition can bring to the company against the consumer behavior which is the center of focus. It looks at innovation and price variance in different market segments and addresses various reasons for the variances in pricing and the reason for adopting such pricing structures.

The paper also critically analyses three different products and service sectors looking at price variances and other factors which create such disparities. A general analysis of the airline industry, telecommunication and the automobile industry have been used as the basis of understanding the existence of different pricing in different market segments and consumer segment.

Introduction

Innovation is an important aspect that companies offering services or products to consumers should dedicate much attention to as it affects the profitability of the company in the long run. Customer demands and the ever shifting trends in tastes and preferences are the key drivers of invention. The consumers generally are looking out for unique services and products which are considered trendy or are either in line with the latest technological advancements. Consumption in itself has become a complex phenomenon that needs much attention in order for a company to remain in business and attain profitability. While providing services, consumer behavior should be closely monitored so that any innovations are geared towards satisfying the identified needs. Lack of focus on consumer demands and the inability to conduct a detailed market research may result into the introduction of products and services which do not satisfy the customers leading to loss of customers. Customers need to be retained at all cost for a business to be sustainable and much effort should be made towards increasing the customer base with minimum exodus to competitors. Innovation therefore is a tool that can be used to change the perception of the consumers about certain products or services which are therefore reflected in pricing.

Value Creation

Value creation in products and services take different approaches. Value addition is that extra service that a consumer gets after purchasing the product or service at no extra cost which could have otherwise been charged elsewhere. Value creation through the provision of extra services acts as a mechanism which makes a consumer decide why a certain company is the ultimate destination for certain products or service whether physical or through the websites. Value creation can be achieved only when the consumer becomes the center of focus. Two key aspects therefore need to be addressed in order to achieve the result. The focus should be in pesuading the intention for a consumer to require a particular product or service by offering attractive packaging and efficiency in acquiring the products. The other focus should be after the purchase where support services are offered to enable the consumer get acquainted with the new product through regular updates and also the inclusion of value added information to enhance the product or service usage. In addition, companies can also create value by helping their customers get rid of their old products by helping them sell off the unwanted products before acquiring new ones which can be an avenue for more opportunities to either sell or promote other products and services based on that rapport. Most companies have either devised a mechanism to monitor the activities of the consumers online through their various websites where more interactive websites which give customer feedbacks have been adopted to capture what the consumers need with real-time responses which is a value creation. Such services make consumers make decisions as to why certain websites are the most preferred destinations when placing their online orders for certain products or services and at the same time enabling the company to know which of their services or products are the most visited by the consumers (Net Industries, 2012).

The most successful businesses focus on value creation for customers, employees and investors. No particular category of these different groups is considered more important than the other. The three groups are interlinked and in order to be successful, equal attention should be given each of them. Creating value for customers can only be a reality when the right employees are in place, developed and are rewarded for their services. The investors must also be taken into consideration as they require return on their investment. When value addition becomes expensive for a company, it becomes difficult for that particular company to achieve its financial obligations. The investors are interested in achieving maximum returns from the value creation and the customer on the other hand should feel comfortable to pay for the costs which are either passed on to them directly or indirectly through pricing. The costs of providing the services are viewed vis-a-vis the returns and a decision is made on the right pricing to offer to the consumer and still remain competitive. Sustainable added value should focus in making the consumer satisfied, be able to sustain a healthy workforce and to offer the shareholder value and a return on investment in order to remain operational. More customers focus on the value of the service they get as opposed to the price which therefore is the reason more companies have become innovative and are devising more value addition services which are charged with an aim of maximizing their profits. However, competition should not be used as a basis on which value creation is focused upon. Customers is key and every effort should address their needs first, once their needs have been identified, value addition should therefore be developed by grouping consumers in market segments where each market segments has its own value addition and pricing. Different market segments have different needs based on their economic strengths. This spells out why the company needs to differentiate the markets and focus on value addition mechanisms which suit the identified segments (Paul O'Malley, 1998).

From the operations perspective, most companies have adopted several techniques such as; Six Sigma, Kaizen and Lean Manufacturing which are all mechanisms to improve their value creation. Six Sigma as a technique concentrates on elimination variation, it addresses quality for the customers and delivery commitments. It is however disadvantaged in the sense that it does not address personalized and customized deliverables in terms of products and services that create a competitive advantage. Kaizen technique on the other hand is a mechanism adopted to drive continuous improvement whereby the employees are empowered and given the mandate to find and display the best business processes that will retain and attract more customers. Lean Manufacturing operates on the principles of waste reduction and elimination of non-value added work. It focuses on the internal controls which reduces cost and focuses on those that add value and prove profitable for the company (Religence, Inc., 2008).

Segmentation Pricing

Segmented pricing is a situation that arises when a company sets different prices for the same product or service without having incurred any additional cost in production or distribution. It is a scheme that the companies employ to tae advantage of the pricing disparities and take advantage of the different geographical regions. Price segmentation can be done time. For instance during the peak holiday seasons, the rates in the hotel space are hiked compared to off peak seasons. Location also is a factor to be considered when pricing since certain areas have low competition which offers the product or service provider the flexibility of determining prices based on the consumer behavior and demand. Also to be considered are the volumes and product attributes. Certain products are designed to target high end markets which therefore cannot fit in certain segments which therefore call for different price structure. In designing a pricing strategy, various factors have to be considered in order to sustain the business; the perceived customer value, competitive response, channels of distribution, cost parameters and congruence with the brand parameters. The perceived customer value will have a direct impact on the pricing structure if the customer is satisfied and get value for their money. Competition will on the other hand determine the structure to adopt and help in setting the benchmark for pricing in any particular marked segment. The distribution channels and other costs incurred are also costs that have to be contained in business some of which are passed on to the consumers in the prices hence the difference in prices (Derrick & Brad, 2008).

Different products and services are being offered at different prices in different customer segments. In the air line industry for instance, there are different price variations on offer for different categories of customers. The airline industry is a very competitive industry owing to the high number of companies offering the service as well as new entrants into the industry. It is the most affected industry by the ever changing global oil prices. The operators have adopted mechanisms to stay afloat and remain profitable despite the deviations in the fuel prices across the globe. In many occasions the providers have been forced to hedge on the fuel prices which are fixed and pegged to the dollar or a currency of choice to cushion them against the unforeseen rise in price or shortage of jet fuel which is the most expensive. The dwindling prices and jet fuel costs could have however been passed on to the consumers but due to hedging, the costs are contained which has continued to mare air transport still affordable and the most preferred mode of transport linking several places. Consumers travel around the world and they have different goals to achieve. Others travel for leisure, others for business while for others it is considered the fastest and have no choice when but to use the planes. It is for this treason that different pricing have been adopted to contain different customer segments of which high prices come with value addition in terms of comfort and additional services to satisfy different categories of consumers. Due to competition, the industry has had to operate within certain rates in order not to chase away the consumers. Therefore the pricing schemes adopted in this industry have are affected by competition.

The other product which is affected by the different pricing menus is the lucrative telecommunication industry. Communication has evolved over the years and with the continued technological advancements, consumer tastes and preferences have changed tremendously. Very technical devices have been unveiled in the market providing the consumer with up to speed access to information and convenience in passing information from different parts of the world. The technology world has provided linkages and platforms to conduct business from one part of the world allowing information sharing to be real time. It has changed the lives of many individual by providing opportunities to earn a living providing employment hence a tool that has elevated poverty in most of the poor economies. The product range for the devices have been witnessed in different market segments with different features which all target different market segments. The price variation comes with the addition of features which are useful for others and not applicable to some categories of consumers whose main goal is to perform basic communication and have access to information and stay abreast with the happenings around the world. High end devices have therefore been introduced as well as the most basic models which all serve the purpose. The added value in the features is what makes the price difference. However in the markets based on the geographical regions the same devices attract different prices subject to competition and value as perceived by the customer and the convenience in obtaining the products and other available services in terms of after sales service and user help.