Term Paper, 2004
1a. What marketing objectives are PeoplePC and Free-PC pursuing?
1b. What pricing approach(es)are these companies using to reach their marketing objectives?
2a. Briefly describe the fixed and variable costs for a company like PeoplePC.
2b. What are the implications of this cost structure?
2c. How can companies like PeoplePC make offers that appear to be free, or almost free?
2d. What are the true costs to the consumer?
3. Use the five product characteristics that influence the rate of adoption to assess the PeoplePC product offering.
4a. What are the core, actual, and augmented products being sold by PeoplePC? Clearly differentiate between the three.
4b. Identify and describe the type of consumer product PeoplePC offers.
4c. Describe three types of companies PeoplePC is competing against.
5a. Do you think PeoplePC is well positioned for success?
5b. What marketing recommendations would you make to PeoplePC?
Case Study: PeoplePC: Is there a free lunch?
PeoplePC’s and Free-PC’s marketing objectives include garnering as many customers as they can for their product and service package offerings.
PeoplePC and Free-PC were reaching these objectives by utilizing a low cost leadership strategy. In the case of Free-PC, this had been taken to the extreme in that they were giving away their PCs for free. In fact, it could be argued that Free-PC was only using the PC users it had given computers too as a marketable commodity to their true customer – advertisers.
Fixed costs for PeoplePC originally included overhead costs such as facility costs, insurance, salaried permanent employees, and other infrastructure costs. Variable costs included the total costs of the PCs, as this amount varied with the number of members that signed up each month, repair service costs, advertising, and hosting costs.
PeoplePC’s cost structure was highly variable dependent on the number of members it had in service and the number of new members that had signed up for service each month. This was an effective cost structure for this company, as costs would rise and fall with revenues, creating a more stable net profit percentage. If their costs were primarily fixed, when PeoplePC’s membership faltered net profits would plummet.
Companies like PeoplePC can make offers that appear to be free or almost free only if there is a secondary revenue source that is not immediately apparent to most consumers. In the case of PeoplePC, their low initial costs are supplemented with added revenue from merchants. Free-PC utilized revenue from advertisers to offset their ‘free’ offer.
The true costs to consumers vary depending on the offer, but typically the consumer is giving up something in exchange for what they are receiving for ‘free’, even if it is not money. In the case of PeoplePC customers, they were subjected to advertising from the multitudes of merchants PeoplePC hoped to make a commission from. This was less blatant than the band of continuous advertising that was on customers’ screen of Free-PC, however it was obtrusive and what consumers paid in place of money for the discounted computer and service.
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