Case Study


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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 Smirnoff’s prices by increasing advertising and promotional expenditure; or it could hold Smirnoff’s price by allowing its market share to fall. None of the three strategies appeared attractive; each would lead to lower profits. Heublein’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 Heublein’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 consumer’s emotive responses and feelings towards purchases.


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