The concept of modern marketing is based on the principle of consumer sovereignty. The most important feature of marketing is focus on the customer. In the consumer market of the developed countries there is a mechanism that determines dependence of the profit received by the company on its ability to meet the customers’ needs. Profit maximization is the commercial purpose of marketing and it is achieved by the expansion and qualitative improvement of the sale of goods. On the customer oriented market, there is the only way to obtain profit: selling a certain amount of goods at a competitive price. Selling goods to the customer, the company at the same time satisfies the needs of that customer. Thus in order to maximize profit, the company must be aware of the customers’ needs and identify the patterns of consumer behavior in the market.
When analyzing the behavior of consumers in the process of purchasing household appliances and electronics it is necessary to keep in mind that there are customers who prefer ordinary items and for whom the quality and/or the price of the product is significant when making a choice; and there are customers who prefer expensive brand-new items and accessories – for them the most important is the brand and popularity of the item. Nonetheless there is a trend of replacing the old electronic appliances with more modern models: conventional TVs with LCD, CD-players with MP3, computers with laptops, tablets, etc.
Marketing strategy of the company depends largely on the company’s reputation and on consumer preferences. It is important for the company what image is created by its products and by the company itself. The image of the company’s products is determined by the past experience, valuation of the products by the customers, and first impressions. An effective means of strengthening the company’s reputation in the market is the brand of the company and the price. The image the company itself can establish depends on its financial and other opportunities; if they are limited, the desired image will probably not be reached. When determining the level of prices for the goods the company always evaluates their quality. High quality in most cases means that a company can set a high price for the goods. Price level can serve as a basis for assessing the quality of the goods offered. Price is often used by the company as a means of differentiating the goods of “luxury” model among the other conventional models. The difference between the prices on such models should be much higher than the production cost difference. The high price of goods can be a tool for building a reputation of a specific product for the companies that produce a wide range of products, as well as to serve as a source of additional income. Some large companies, the pricing strategy of which is aimed at market penetration, set reasonable prices for high-quality goods. Instead of attracting the consumer to the high-quality product by means of high price, they are working to reduce overhead, looking for efficient ways of procurement of raw materials, and improving the organization of production. If the company has built a reputation for producing high-quality luxury goods, it is unlikely to opt for cheap and low-quality goods when developing the new series of goods. This company will focus its efforts on high-quality products, charge high prices for them and try to avoid making an emphasis on the price when advertising them.
Regarding Tweeter, its initial strategy was high-quality goods and high level of customer service. They did not sell entry-level products; they only offered middle and high-end ones. At the beginning this strategy worked, Tweeter was perceived as a specialized store with premium prices for the goods, but the consumers believed that what they received in return for that price was worth it. The situation changed after the financial crisis and after new retailers entered the market. These retailers offered the goods of lower quality but at a significantly lower price. The consumer behavior also changed; the majority of them cared only about the price and could not understand the principal difference between the high-end goods offered by Tweeter and much cheaper entry-level goods offered by other retail stores. In order not to lose its profits, Tweeter started to sell entry-level brands at the prices similar to those in cheaper stores, but still it had a reputation among the customers as a specialized and more expensive store compared to other retailers. Like its competitors, Tweeter started to offer weekend sales, but this strategy did not bring the expected effect and the company did not receive any advantage on the market. In 1993, the company management decided to switch to “Every Day Fair Price” strategy (Harvard Business School).
In order to communicate its “Every Day Fair Price” strategy to the customers, Tweeter introduced Automatic Price Protection. Thus, Tweeter guarantees its customers the lowest price for the goods. However in the case if within 30 days after the purchase of certain goods, the same goods are offered by a competitor at a lower price, the customer will receive a refund in the amount of 100% of the difference in price. Offering some form of price protection is a common practice for electronics retailers, but Tweeter has one peculiarity: the company does this automatically. Usually, the customer is responsible for finding a lower price and claiming a refund, but Tweeter decided to do this itself – the company has a specialized department that is responsible for comparing the prices offered by the company with the competitors’ prices provided in local newspapers and for sending out refund checks in case they detect a lower price.
In case of Tweeter, the Automatic Price Protection proved to be effective: the financial performance of the company improved and the sales increased significantly. In case of Bryn Mawr Stereo and Video (the company that was acquired by Tweeter) implementation of Automatic Price Protection did not have any significant effect on profitability and/or sales, but it is possible that the reason for this is that customers are not aware that Bryn Mawr Stereo and Video started to use Automatic Price Protection because it was not advertised much.
Although there are many sceptics who question the effectiveness of Automatic Price Protection, in my opinion Tweeter should continue to use it. Although it costs the company on average about thirty thousand dollars per month, it helps to ensure the customer loyalty and not to lose profits due to decrease in sales. It is necessary to make more information available to the customers about Automatic Price Protection in order to ensure that they are aware that such a policy is offered and how it works. But apart from the low price, Tweeter should think of some other marketing strategies it can use to attract new customers and to ensure loyalty of the existing ones. It is not difficult to notice that a vast number of advertisements concentrate on discounts and low prices. Many business leaders believe that the customers only want the lowest price. Indeed, the lowest bid price resonates with a particular part of the audience, by the way with the least loyal one. If a certain company is able to propose a price that is the lowest in its market category, then its marketing strategy is obvious – the positioning of the company as a discounter is taken de-facto. However, there can be only one such company in each market category because there can be only one lowest price. Consequently, it is necessary for the other companies that belong to the same market category to think of marketing and pricing strategies that will allow them to differ and compete.
Harvard Business School. “Tweeter etc.” President and Fellows of Harvard College 1996: 1-24. Print.