The 2023 release of live-action film Barbie, and its accompanying marketing blitz, incited a worldwide Barbie craze. Suddenly Barbie was everywhere, a celebrated icon reinstated at the forefront of cultural conversation. This goodwill stood in contrast to decades of criticism of the Barbie brand. Although proponents celebrated Barbie for her promise to "inspire the limitless potential in every girl," detractors felt that the doll promoted a narrow beauty standard and perpetuated gender stereotypes. Past efforts to diversify the Barbie doll had met mixed reactions. Did the movie's superlative success mean that Barbie's dark days of controversy were behind her? In a fast-changing, turbulent industry, Mattel executives need to decide how to sustain Barbie's positive momentum, and whether the strategy can be replicated across other brands in Mattel's portfolio.
Marketers have begun experimenting with AI to improve their brand-management efforts. But unlike other marketing tasks, brand management involves more than just repeatedly executing one specialized function. Long considered the exclusive domain of creative talent, it encompasses multiple activities designed to build the reputation and image of a business-such as crafting and communicating the brand story, ensuring that the product or service and its price reflect the brand's competitive positioning, and managing customer relationships to forge loyalty to the brand. A brand is a promise to customers about the quality, style, reliability, and aspiration of a purchase. AI can't fulfill that promise on its own (at least not anytime soon). But it can shape customers' impressions of a brand at every interaction. And it can automate expensive creative tasks-including product design. To succeed with it, you must understand how it is perceived by stakeholders and what can be done not only to mitigate their concerns but to make them avid supporters. Using examples from Intuit, Caterpillar, and LOOP, along with in-depth scholarly research, the authors propose a framework for thinking about the key roles that AI plays when it comes to managing brands effectively.
Firms and investors alike are beginning to recognize the importance of tracking how revenues from existing customers are evolving over time and to appreciate the value in understanding what might explain changes in these revenues. Consequently, in addition to looking at measures such as the retention rate to assess customer base health, they have begun examining a quantity called Net Revenue Retention, or NRR, which measures the fraction (or percent) of revenues expected from a cohort of customers that were actually generated during the period. In this note, we formally define the NRR metric, show how it can be broken down to pinpoint the type of revenue changes taking place, i.e., in what way(s) existing customers are spending differently, and explain NRR's potential role in guiding customer management decisions. The framework presented further highlights how knowledge of NRR can help avoid issues that arise when revenues from newly acquired customers are blended with those of from existing customers, as well as how NRR relates to other customer management metrics, such as retention rate, CAC (customer acquisition cost) and CLV (customer lifetime value). The note provides several concrete examples to illustrate the main ideas presented and the relevance of NRR in practice.
Channels of distribution are a critical component of a firm's go-to-market strategy. A company may elect to sell its products directly to customers (DTC) without the assistance of any intermediaries or, alternatively, it may seek several channel partners to help it reach various customer segments at various locations. Regardless of the route(s) taken to make products and services available to customers, a company needs to understand the pricing implications of its chosen channel structure. This note covers several key concepts, frameworks, and analyses any business should master in order to effectively link efforts to deliver value (via its channels strategy) and efforts to extract value (via its pricing strategy). In particular, the note covers situations where the channel players apply a margin (or markup) to determine their price, as well as settings where they leverage information on market demand to maximize profits. Sources of pricing friction between manufacturers and retailers are highlighted, such as double marginalization, and ways to mitigate these frictions are featured. Furthermore, a number of key pricing practices that channel members engage in are covered, such as MSRP (manufacturer suggested retail price), MAP (minimum advertised price), pass-through rate, and consignment selling. To help illustrate the key ideas, the note provides multiple examples and intuitively explains the steps involved in setting prices in light of the channel structure.
In 2023, Marvin Ellison, CEO of Lowe's, contemplated enhancements to the company's Total Home Strategy to accelerate performance and grow market share. In the last five years since becoming CEO, Ellison had championed a turnaround of the company, completing a comprehensive foundational reset before embarking on a forward-looking growth plan called the "Total Home Strategy." This strategic plan identified five critical areas for driving growth: elevating product assortment, driving Pro customer penetration, accelerating online business, expanding installation services, and driving localization. As Lowe's entered its second century and revenues approached $100 billion, Ellison considered ways to take the growth strategy to the next level and grab market share from its archrival Home Depot. He mulled over whether and how initiatives such as expanding the customer base to include more medium-sized and Hispanic Pros as well as do-it-yourself (DIY) male consumers, advancing online commerce, leveraging new technologies like generative AI, and increasing the localization of stores would not only uphold Lowe's legacy but also propel it to new heights.
In the summer of 2023, Amperity management was facing a critical decision on its future direction. Given the dramatic changes occurring within the digital advertising ecosystem, as concerns over consumer privacy placed limits on the ability to engage in third-party tracking, Amperity had to decide whether to pivot and develop a dedicated solution for advertisers based on first-party data. Such a pivot would require shifting resources from improving the company's core product, the customer data platform (CDP), which helped firms unify all their data sources and properly identify customers; as well as take targeted marketing actions mainly on their existing customers (i.e., development and retention efforts). A shift to serve digital advertising players not only had far reaching product development implications, but also strategic and go-to-market consequences. In particular, Amperity was considered a leader in the CDP category and a pivot could risk that position. Furthermore, the move would likely require changing the company's communications approach-who its salesforce targeted and how-and could imply partnering with digital ad agencies as well as ad platforms, like Meta and Google Ads. The monetization structure going forward also required careful consideration. Specifically, to date Amperity's pricing was contracted upfront and largely based on the number of customer profiles its CDP was expected to identify and the amount of data to be ingested. However, in the paid advertising domain, players typically took a percentage cut of the overall campaign spend. Not lost on Amperity co-founder and CTO Derek Slager's mind was that many clients, existing and prospective, were looking for concrete ways to leverage generative AI tools to improve their customer relationship management efforts.
21Seeds, a female-founded flavor-infused tequila startup launched in 2019, had made inroads into the alcoholic beverage industry by focusing on an underserved consumer segment in spirits-women, primarily in their 30s and 40s, many of whom were moms-and by following a non-traditional playbook of circumventing the traditional on-premise channel (bars and restaurants) and selling primarily to the off-premise channel (retail stores, such as supermarkets and liquor shops) where their target consumer shopped. The all-female founding team had no background in the alcohol industry, yet had grown annual sales to 66,000 cases within just three years-a highly unusual feat for a new spirits brand. Excited about the new "white space" opportunity that 21Seeds offered, Diageo, the multinational beverage company with a portfolio of other major tequila brands, including Don Julio, Casamigos, and DeLeón, acquired the fledgling brand in March 2022, retaining the co-founders as brand ambassadors. Diageo placed 21Seeds in its new Breakout Growth Brands Division, a select small group of brands to be nurtured for aggressive growth, with a goal of turning 21Seeds into a major player within the super-premium tequila segment. Diageo was considering several strategic initiatives for growing the brand, including product innovations, distribution opportunities, and marketing and branding approaches. 21Seeds had been successful to date by executing on a highly focused sales and marketing approach. Now, as the brand was under pressure to accelerate sales, its identity was being reassessed by Diageo. How important was it, at this stage in the lifecycle, that 21Seeds adhere closely to its founding brand story and brand positioning, or was now the time to evolve the brand en route to becoming a much bigger player in the market? The 21Seeds co-founders had views on how to grow the brand, but recognized that it was now part of a large portfolio of brands and ultimately under Diageo's control.
In the spring of 2023, and following the favorable results of a trial involving its phage cocktail for treating lung infections among cystic fibrosis (CF) patients, the leadership of BiomX had several critical issues to wrestle with. First, given its precarious financial position, with funds to continue operating for about 18 months, the company was considering how it could raise more money. Possibilities included finding a buyer, convincing an entity to take them private with a cash infusion, securing a private investment in public equity (PIPE) deal, and trying to interest institutional investors to buy shares. Second, given the positive results just reported and the pending outcome of ongoing trials, management began assessing the commercial potential for its treatment for lung infections in CF patients. The executives had to define the likely total addressable market (TAM) as well as what could be a reasonable price to charge; other go to market challenges, such as educating the medical community and convincing payers to cover the treatment, would also need to be overcome. Lastly, if the ongoing trials in CF patients also produced positive results and additional funding was secured, the company had to decide on future R&D efforts. Options ranged from developing and testing phage cocktails to treat low-risk/low-reward conditions (such as prosthetic joint infections or PJI), medium-risk/medium-reward conditions (such as infections associated with atopic dermatitis), or high-risk/high-reward conditions (such as inflammatory bowel disease or IBD).
In the summer of 2023, the co-founders of Infarm, a controlled environment agriculture (CEA) company, were contemplating a major pivot going forward. While Infarm had successfully shown it could grow over 75 products-mainly herbs, leafy greens and mushrooms-in modular indoor facilities, and was able to sell the yield to major supermarket chains across Europe and North America for almost a decade, recent developments required a major rethink of the business. The dramatic rise in energy prices, especially in Europe, as a result of the Russia-Ukraine conflict, made growing crops indoors much costlier; inflationary pressures had further led retailers to look for cheaper produce alternatives. Consequently, Infarm had to shut down most of its growing centers. At the same time, the company's scientists had demonstrated the ability to grow wheat indoors, with a yield per square meter that was already thirty-eight times that of wheat grown conventionally in an open field. CEO Galonska and his leadership team were now pondering whether to shift the company's focus to wheat and target countries that desired to achieve food self-sufficiency. For the pivot to be successful, Infarm would have to convince leaders in these countries to heavily support (and subsidize) the creation of massive "gigafarms," capable of producing thousands of tons of wheat annually, as well as develop a plan for selling at least some of the yield commercially. Another decision facing management was what to do with the existing units in Europe. Infarm could either try to find a local player to take on their operation, or again aim for countries that imported much of their produce and ship the units there. Either way, Infarm would remain involved in technical and operational support under a Food as a Service (FaaS) model.
This note provides an overview of how psychological principles may be used as part of a seller's pricing strategy. The note defines the concept of psychological pricing and explains the motivations for firms to engage in it. Prominent practices and tactics, with detailed reference to the psychological and behavioral principles at play, are featured. Numerous examples are given to illustrate the material covered. The note also highlights several concerns companies might have in employing psychological pricing techniques, along with thoughts on how to mitigate or counter these reservations.
This note offers a comprehensive exposition to subscription revenue models and aims to explain their recent rise. It covers the advantages to firms of employing a subscription-based approach to monetization (as opposed to "one-off" upfront payment), as well as the benefits to consumers from the arrangement. The note further provides a typology of the different subscription models used in practice, and outlines the various considerations involved in designing an effective subscription service. Also covered are the key performance indicators (KPIs) and metrics companies should use in order to track the performance of the subscription design they have elected to follow. Lastly, common challenges firms may face when implementing a subscription model are highlighted. The note is replete with examples that illustrate the concepts and ideas presented.
This note provides a comprehensive exposition to the topic of dynamic pricing (whereby the fee customers are charged is time-dependent). It covers the motivation for firms to engage in dynamic pricing, provides a typology of the main formats dynamic pricing can take, and is replete with examples that showcase how dynamic pricing is implemented in practice. The connection between dynamic pricing and price discrimination, as well as algorithmic pricing, is also presented. The note further highlights potential pitfalls firms might experience when running dynamic pricing schemes and offers ways for them to avoid or mitigate those risks.
This case follows the evolution of pricing strategy at Echosec Systems, a Canadian open source intelligence firm. The case provides information on pricing as the company grows and diversifies its product offerings.
In 2022, Sophie Desormière arrived at French roboshuttle producer Navya, tasked with charting a new course in a challenging sector. The company, which had recently listed on the Paris Stock Exchange, was burning through cash reserves and needed to transform the promise of its technology into a credible business with a solid revenue stream. In the short term, Desormière had to decide whether, and if so under what pricing terms, to accept an opportunity that recently emerged in the U.S. However, the opportunity involved renting, rather than selling, and also required Navya to operate the service. In the medium term, the company had to navigate questions on whether to concentrate on the software technology that enabled driverless mobility or continue to juggle the hardware side of the business at the same time. Furthermore, questions remained around which market was best suited for Navya's product, and which would be ready with the right regulatory environment to turn promising use-cases into mass transit solutions when the technology allowed getting rid of the on board attendant; at that point Navya might consider re-pricing is AV technology. The form factors Navya should focus on was also hotly debated. Some questioned whether the required regulation and consumer buy-in would come too late for Navya, and whether they should therefore switch the business model to transport goods rather than people. Desormière would need to address all these issues, if the business was to arrive at its intended destination.
Startups are often evaluated by how well they perform on unit economics, defined as the ratio of a customer's lifetime value (LTV) to acquisition costs (CAC). A common target for unit economics, advocated by many VCs and analysts, is 3:1 (i.e., LTV/CAC=3). While there is certainly appeal to having a relatively high unit economics - and it provides the firm with a guide on how much to expend on acquiring customers - it is not obvious whether this prescribed "rule of thumb" ratio is in the firm's best interest. This note analyzes the problem by exploring how a company should go about determining the optimal amount to expend on customer acquisition. The approach proposed, in effect, calls for maximizing customer equity (the sum of lifetime values gained from all customers that are acquired less the acquisition costs incurred) and takes into account that there are decreasing returns to marketing efforts. The resulting customer unit economics (referred to in this note as CUE for short) is shown to often be lower than 3:1 - suggesting that firms have more leeway to grow while at the same time being mindful of profits.
In the summer of 2022, it became clear that Netflix would introduce an ad-supported tier alongside its existing subscription plans in the near future. Speculation abounded as to the details of the new tier: How many minutes of advertising would it include? What picture quality would it offer? How many screens could be viewed at the same time? And, critically, how much would it cost the consumer per month? In this exercise, students are tasked with trying to assess whether Netflix should indeed go ahead with introducing a new ad-supported tier - and if so, how? - or whether the company would be better off sticking with its existing tiers and repricing them - and if so, by how much? Students need to evaluate which of these options would maximize the number of subscribers, and importantly, profits. Students have at their disposal results from market research (specifically a conjoint analysis study), financial reports, and industry data. The exercise also allows for a conceptual discussion of the merits of alternative revenue models: ad-driven vs. pure subscription-driven vs. a hybrid of the two.