09: Marketing, LinkedIn
09: Marketing, LinkedIn
Review “Note on Marketing Strategy” (HBS 9-598-061)
Read the article, “Principles of Pricing”. As you read this article, think how you would answer the following questions:
- What is meant by the “objective value” and the “perceived value” of a product? How do these values relate to the price that a company may charge for the product?
- With respect to pricing, what provides incentive for a consumer to purchase a product?
- With respect to pricing, what provides incentive for a company to produce a product?
- How would you proceed to determine the objective and perceived values that a particular customer segment has for a product?
- Examine the five “typical” questions listed on page 5 of the article which might be asked in a direct-response pricing survey. Based on our recent in-class discussion of Concept Test methodology and its use for price testing, which of these five questions are valid and which violate the protocol for obtaining un-biased responses?
- What factors might affect various customers’ sensitivity to a product’s price? How might such factors influence a company’s selection of a target market segment for its product?
- What factors might influence the customization of product pricing across various market segments? Explain why and how a product may be priced differently for different market segments.
- Describe alternative strategic marketing decisions that may influence a company’s product pricing.
- What legal and ethical issues should be considered with respect to product pricing?
- How would you determine the price for a new high-tech product?
Watch/listen to the "EAS545 Introduction to Pricing" video lecture (audio with PowerPoint slides, EAS545 Introduction to Pricing.pptx) on Canvas in Files\Handouts\Video Lectures.
Read the “LinkedIn (A)” (9-707-406) case. Consider the following study questions as you analyze the case:
- Describe LinkedIn’s segmentation analysis and the company’s value proposition for each segment.
- What is LinkedIn’s competitive positioning? How does it differentiate itself?
- How would LinkedIn's Positioning Statement read?
- The case presents two strategic options. Which of the two strategic options would you recommend that Guericke and Hoffman pursue? Explain your reasoning.
- Which segments do each of the strategic options serve? Which does each potentially alienate? Why?
- Which option would each of the segments be more likely to prefer and adopt? Explain.
- What are the drivers of revenue for each option?
- How does each strategic option impact the company’s ability to generate revenue? Increase the number of LinkedIn users in each of the segments?
DUE:
There will be a short 12-minute closed-book, closed-notes quiz on one or more of today’s readings at the beginning of class. The quiz will be available via Canvas, so be sure to bring a laptop or tablet to class to take the quiz. Make sure your laptop/iPad is configured for Respondus Lockdown Browser.
Quiz questions are typically derived from the study questions provided above as part of the day’s assignment. While the quiz question may not exactly duplicate a study question, it usually will relate to the substance of one or more of the study questions. To prepare for a closed-book quiz, be sure you are prepared to address each of the posted study questions.
NOTE: Days on which we have quizzes, no essays will be due.
1
1. Objective vs. Perceived Value
- Objective Value (OV): The product’s true economic value compared to its best alternative, regardless of whether the consumer recognizes it (9-506-021, pp.1-2).
- Perceived Value (PV): What customers believe they’ll gain from the product. PV can be raised through effective communication or lowered by lack of information (9-506-021, p.2).
- Relation to Price: A product’s price typically must lie between its cost of goods sold (lower bound) and the consumer’s perceived value (upper bound) (9-506-021, p.2).
2. Consumer’s Incentive to Purchase
Consumers buy if Perceived Value ≥ Price, since the difference (PV – Price) is their net benefit (9-506-021, p.2).
3. Company’s Incentive to Produce
Firms require Price ≥ Cost for profit. The gap (Price – Cost) funds ongoing operations, covers fixed costs, and yields profit (9-598-061, p.1; 9-506-021, pp.2-3).
4. Determining Objective and Perceived Value
Objective Value (OV): Calculate benefits vs. the next-best alternative (e.g., cost savings, performance gains). Formula:
TEV = Cost of the Next-Best Alternative + Value of Performance Differential
= Price of Next-Best Alternative + System Crash Savings – Added Operating Cost
OV=Competitor’s Price+Value of Advantages−Value of Disadvantages OV
= \text{Competitor’s Price} + \text{Value of Advantages} - \text
(9-506-021, p.4).
TEV = Cost of the Next-Best Alternative + Value of Performance Differential
Perceived Value (PV): Measure with concept tests or direct-response surveys (e.g., “Would you buy at $X?”). Combine results with marketing efforts to educate consumers and boost perceived worth (9-506-021, p.5).
5. Direct-Response Pricing Survey Questions
Typical questions include:
- Likelihood of purchase at $X?
- At what price would you definitely buy this product?
- How much would you pay?
- How many units would you buy at $X?
- At which price difference would you switch brands?
Valid questions are realistic, avoid prompting specific answers, and reflect real purchase contexts. Biased questions overemphasize price alone, ask for extreme hypotheticals, or lead respondents (9-506-021, p.5).
6. Factors Affecting Price Sensitivity
- Spending Level (absolute or share of total costs)
- Who Pays? (user vs. employer vs. insurer)
- Perceived Product Differences (unique features or quality cues reduce price focus)
- Ease of Comparison and Switching (clear alternatives and low switching costs raise sensitivity)
(9-506-021, pp.6-7).
These considerations guide segment selection: a price-sensitive market may require lower prices or cost-justification, whereas a less price-sensitive segment might tolerate premiums (9-598-061, p.2).
7. Price Customization Across Segments
Firms vary prices based on differences in willingness to pay. Strategies include:
- Product versions (good/better/best)
- Controlled availability (coupons, targeted offers)
- Demographics (e.g., student/senior discounts)
- Transaction details (advance purchase or loyalty programs)
(9-506-021, p.8).
8. Strategic Marketing Decisions Influencing Pricing
- High Price & High Marketing Spend: Differentiated product, brand building (Zantac model).
- Low Price & Low Marketing Spend: Rely on product’s inherent value.
- Penetration vs. Skimming: Either lower initial price to gain market share quickly or start high to “skim” more-profitable segments (9-598-061, pp.13-14; 9-506-021, p.9).
9. Legal and Ethical Considerations
- Price Discrimination: Legally permitted if not used to reduce competition, but can be seen as unfair if poorly communicated.
- Predatory Pricing: Illegal if intended to drive rivals out.
- Price Fixing: Colluding with competitors is illegal.
- Resale Price Maintenance: Prohibiting retail price adjustments is typically illegal.
(9-506-021, pp.9-10).
10. Pricing a New High-Tech Product
- Estimate Objective Value: Quantify functional, cost-saving, or quality advantages.
- Gauge Perceived Value: Surveys, interviews, pilot usage.
- Set Strategy: Choose skimming (premium for early adopters) or penetration (low price to build share).
- Align Mix: Ensure channel, promotion, and product support the chosen price (9-598-061, pp.2-3; 9-506-021, pp.8-9).
2
1. LinkedIn’s Segmentation & Value Proposition
- Relationship Managers (≈90%): Want to maintain and reconnect with trusted first-degree contacts for future opportunities, track colleagues’ career moves, and occasionally accept inbound requests (citeturn1file0).
- Networkers (≈5%): Constantly grow their networks by adding large numbers of direct connections, including strangers. They frequently act as intermediaries for others’ introduction requests (citeturn1file0).
- Contactors (≈5%): Recruiters, salespeople, or business-development professionals who systematically search for new candidates or prospects; rely heavily on the referral mechanism to reach beyond their direct networks (citeturn1file0).
LinkedIn offers each segment the ability to (a) manage or expand relationships, (b) build trust via endorsements, and (c) find talent, clients, or other professional resources quickly.
2. Competitive Positioning & Differentiation
LinkedIn focuses on professional rather than purely social networking. It preserves trust and relevance through a referral-based introduction system and detailed professional profiles. This differs from more socially oriented platforms and from simple “open contact” sites (citeturn1file0). By emphasizing privacy, controlled contacts, and work-related features (e.g., endorsements, job listings), LinkedIn builds credibility among business users.
3. LinkedIn’s Potential Positioning Statement
"For business professionals seeking quality connections, LinkedIn is the leading online network that uses referral-based introductions and endorsements to ensure trusted, relevant interactions. Unlike purely social sites, LinkedIn keeps a professional focus that helps users expand their careers, recruit talent, and find new business opportunities." (Adapted from citeturn1file0)
4. Recommended Strategic Option
Between (1) rolling out a premium bundle of eight services for power users (e.g., more simultaneous requests, “Ask Your Network,” “Who Should I Already Know?”) and (2) allowing paid direct contact without referrals, a premium bundle seems safer. It aligns with segment-based pricing—charging those who derive higher value (citeturn1file1)—and avoids alienating relationship managers who prefer not to receive unsolicited messages. This premium approach could generate enough revenue from frequent users (networkers, active contactors) without disturbing the referral culture valued by relationship managers.
5. Segments Served vs. Potentially Alienated
- Premium Bundle
- Primarily serves networkers and high-usage contactors (they want advanced tools).
- Relationship managers remain free-tier users and likely stay engaged.
- Paid Direct Contact
- Favored by recruiters/sales (contactors) who need frictionless outreach.
- Risks alienating relationship managers who may resent unsolicited messages (citeturn1file0).
6. Which Option Each Segment Prefers
- Relationship Managers: Prefer to keep introductions through referrals (i.e., free tier and minimal spam), so they’d lean toward the premium bundle option if it preserves existing boundaries.
- Networkers & Contactors: May welcome either option but would especially benefit from direct outreach. However, networkers also appreciate the referral system that preserves their “intermediary” role (citeturn1file0).
7. Revenue Drivers
- Premium Bundle: Recurring subscription fees from power users who value extended features. Could also deepen usage of job listings and other verticals (citeturn1file0).
- Paid Direct Contact: Transaction fees for each unsolicited message—especially appealing for recruiters who consistently need new leads (citeturn1file0).
8. Impact on Revenue & User Growth
- Premium Bundle:
- Generates steady subscription revenue from frequent users.
- Minimally disrupts casual members (relationship managers), thus preserving overall user growth.
- Consistent with value-based pricing (charge power users more) (citeturn1file1).
- Paid Direct Contact:
- Could generate high transactional revenue if many recruiters pay-per-message.
- Might drive away or discourage relationship managers, reducing long-term network growth and undermining trust (citeturn1file0).
Overall, a premium subscription approach appears more sustainable, preserving trust while capturing extra value from segments that rely heavily on LinkedIn’s advanced features (citeturn1file0; citeturn1file1).