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Introduction
Kraft Heinz Company is an American food manufacturing for-profit organization. The company sells sauces and condiments, dairy and cheese, ambient foods, seafood and meats, and chilled and frozen foods (“Form 10-K,” 2020). Heinz is a well-known food manufacturer that leads the market in a highly competitive environment. The justification is that its net sales exceed $4 billion in the United States alone, and the company’s major customer is Walmart (“Kraft Heinz reports fourth,” 2019). At the current state, Kraft Heinz is primarily focused on growth and market share increase due to the overall competitiveness. The products are different due to the long-established brand identity of the organization, where their goods are viewed as more natural and healthier.
Heinz’s major variable costs are raw materials used to manufacture the products. These include “dairy products, meat products, coffee beans, nuts, tomatoes, potatoes, soybean and vegetable oils, sugar and other sweeteners, corn products, and wheat products” (“Form 10-K,” 2020, p. 8). In the case of fixed costs, the main source of expense is operations due to a large pool of employees. It is important to note that fixed costs are costs that do not depend on the volume of production, work, services, in contrast to variable costs, which add up to total costs (Liu & Tyagi, 2017). Total costs are the totality of all expenses of the enterprise during a given period of time that is necessary for the manufacture of a certain type of goods, works, and services. Thus, fixed costs are all types of resources aimed at production and independent of its volume. In addition, fixed costs do not depend on the number of services provided or goods sold. Even if the company temporarily stops the production of products or stops providing services, these costs will not decrease.
Summary Instructions
The selected pricing strategy is based on competitive analysis, where the average market price value is identified and the products offered within the given range. The pricing strategy was selected because the customers are price sensitive. In addition, the company does not position itself as a luxurious or high-end brand, which means that price is critical for its attractiveness. Heinz also is primarily focused on a few food categories, which generally possess a price sensitivity factor. The price is based on market analysis, and it is equal to $3. Cost + Profit = Selling Price, and $3 – $2 = $1. The cost represents the average cost of manufacturing the product, which is derived from the company’s annual report (“Form 10-K,” 2020). The development of pricing policy and strategy involves a number of works, calculations, and actions that need to be revised when producing a new product, changing the general environment of competition. A pricing strategy works ineffectively if prices change too often, so pricing is difficult to explain to consumers.
This strategy applies to all phases of the life cycle, except decline, and is most typical for most enterprises that consider making a profit as a long-term policy. Buyers have average income and price sensitivity, and products are often standardized. The advantage of the strategy is a relatively calm competitive situation, and the disadvantage of the approach is difficult product identification. Heinz, having launched some types of ketchup on the market a few years ago, set a mid-market price for them, and it is focused on the segment of buyers with an average income. After a prolonged action of the initial estimates, it becomes necessary to change them due to changes in market conditions, the stage of the life cycle, or other reasons.
References
Form 10-K. (2020). Web.
Kraft Heinz reports fourth quarter and full year 2019 results). Web.
Liu, Y., & Tyagi, R. K. (2017). Outsourcing to convert fixed costs into variable costs: A competitive analysis. International Journal of Research in Marketing, 34(1), 252-264.
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