Reference no: EM132583284

Price and Channel Strategy

Not too long ago, Foxtons, a New Jersey-based discount real estate company, had to shut its doors forever and file for bankruptcy. The founder, Glenn Cohen, initially made a splash when he founded Foxtons in 1999. He promised to save homebuyers and sellers money.

1. How was he going to do this? By cutting sellers commission to just two percent ... one-third of the standard six per cent commission.

The collapse of Foxtons is a much-needed reminder that discounting - competing based on price - is not an effective long-term business strategy.

At the time, the average real estate agent, charging traditional commissions earned a modest income - around $47,000 a year on average. One-third of $47,000 is $15,667.

Discounting often fails as a business strategy because the more you lower your price, the less money you make. Eventually, you end up working for very little for customers who do not value your experience, service or knowledge.

2. Also, if low price is your only selling point, what happens when your competitor undercuts you in a price war? Low-priced vendors and their employees resent working for so little, which translates into poor service for the customer.

Nobody wins.

3. Instead of being the low-priced bidder, how can a business add value? And by doing so, how can a company command average or even premium rates?

4. Do you think that most consumers today are resistant of "Freemium" promotions, or are they still effective (for the most part)?

5. Are there still some industries remaining that have not utilized this marketing tool? Are there some industries where this type of offer just would not make sense?