Sothebys.com: Giving the Van Gogh Away

This is a case report on auction house Sotheby’s launch of its online platform, Sothebys.com, based on Harvard Business School’s case, Sothebys.com. You can purchase the original case from HBS here. Download a pdf of this case report here.

ABSTRACT

The current revenue model of Sotheby’s online auction sites does not adequately monetize the value the platforms offer both buyers and sellers. The situation is such that the average lot sold on Sothebys.com is losing money for the firm. To rectify this, Sotheby’s must charge their Associate members for access to the platform, change the premium schedule of online sales to match that of live auctions, and make it a strategic initiative to push lower priced items from the live auctions to online sales to improve the company’s overall profitability.

Prepare for Rush Hours at the Airport

The airport is about to get even more fun.

The Wall Street Journal reported on Thursday that American Airlines would be reverting to an older model of “peak” scheduling in an effort to bump up its revenue. By grouping flights into select high-traffic hours, the airline expects to increase the number of connections available to customers and its chance of filling its planes. Robert Isom, American’s chief operating officer, projected that re-peaking schedules at hubs will add $200 million in revenue a year.

Hair Raising

Adapted from Marc Cosentino’s Case In Point, 8th Edition, pages 115-118:

The client is a large pharmaceutical company that has discovered a cure for baldness and thinning hair. It is a pill that will restore a full head of hair in three months. The pill needs to be taken every day to maintain the hair’s thickness. Estimate the size of the US market and tell me how you would price the drug.

Communicating Value and Price

Adapted from Nagle, Hogan, and Zale’s The Strategy and Tactics of Pricing, 5th Ed., Chapter 4

Value-based pricing strategies fail unless potential customers recognize and understand the value of your products and services and how they differ from those of your competitors. Clear value and price communication can protect your value proposition from competitive encroachment, improve willingness-to-pay, and increase the likelihood of purchase. Effective messages cater to both different types of products and different stages of the buying process.

What is Strategic Pricing?

Adapted from Nagle, Hogan, and Zale’s The Strategy and Tactics of Pricing, 5th Ed., Chapter 1

Introduction

Many factors determine profitability:

• technology
• regulation
• market information
• consumer preferences
• relative costs

Pricing strategy must take these factors into account to match products with prices that will deliver value to customers and profits to suppliers.

Growth and Increasing Sales

Adapted from Marc Cosentino’s Case In Point, 8^th edition (p. 45):

It is important to remember that growing a company or increasing sales does not necessarily imply an increase in profits. Growth can mean capturing more market share, improving brand recognition, expanding the customer base, or a number of other objectives. Most commonly, the focus is on increasing sales volume.

Pricing Strategies

Adapted from Marc Cosentino’s Case In Point, 8^th edition (p. 42-44):

For pricing questions, the process is relatively simple: understand the company, research the product, and determine a pricing strategy.

The Hottest Runway of 2014: Wall Street

On November 12^th, Michael Kors Holding Limited joined the S&P 500, replacing NYSE Euronext (4). The company’s spectacular growth following its IPO in December 2011 has proved to be more than a fad. The Kors brand has laid claim to the fast-growing and seemingly paradoxical niche of ‘affordable luxury’ as the global economy recovers from the financial crisis. The U.S. premium handbag and women’s accessories market is currently estimated to be $10.3 billion dollars (1), and in China, Bain & Co. estimates luxury goods sales to reach up to $21 billion this year (2). In the last three years alone, Michael Kors has already captured an estimated 16% of the market (1).

An M&A Checklist

Adapted from Marc Cosentino’s Case In Point, 8^th edition (p. 42):

Mergers and acquisitions are closely related to market entry cases. Many of the same concepts apply, but there are several issues unique to M&A cases.

Market Entry Cases

Adapted from Marc Cosentino’s Case In Point, 8^th edition (p. 40-42):

Cases involving entering a new market usually require two-part answers:

1. Should we enter the market?
2. How do we enter the market, and why?

They do not necessarily have to be answered in that order. Sometimes, uncovering the benefits and risks of the possible options for entry can change your answer to the first question.