THE PRICE OF VODKA
A few years ago the producer of Smirnoff vodka, Heublein, was concerned when a competitor, Wolschmidt, entered the market with a competitor product priced at $1 less than a bottle of Smirnoff. There were a number of counter-strategies available to Smirnoff. It could lower its prices by $1 to retain market share; it could hold SmirnoffĂ˘â‚¬â„˘s prices by increasing advertising and promotional expenditure; or it could hold SmirnoffĂ˘â‚¬â„˘s price by allowing its market share to fall. None of the three strategies appeared attractive; each would lead to lower profits. HeubleinĂ˘â‚¬â„˘s response to the competitor attack was highly innovative. The price of a bottle of Smirnoff was raised by $1! The company then introduced a new brand, Relska, to compete with Wolschmidt. Moreover, it introduced yet another brand, Popov, priced even lower than Wolschmidt. This product line-pricing strategy positioned Smirnoff as the elite brand and Wolschmidt as an ordinary brand and won extra profit for Heublein.
Despite HeubleinĂ˘â‚¬â„˘s three brands being the same in terms of taste and manufacturing cost, they were perceived differently by their consumers. Using price as a signal, Heublein sells roughly the same product at three different quality positions. This method relies on the consumerĂ˘â‚¬â„˘s emotive responses and feelings towards purchases.
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