Category: Pricing Strategy

Impact Of Discount Pricing Strategy On Organizational Profits: Analytical Essay

Abstract:

The purpose of this study to investigate the impact of discount pricing strategy on organizational profit and the importance of planning for a discount; the study was conducted depending on unreal numbers, and it clarify that discounts increase sales volume, but not always increase the profits.

KEYWORDS: Pricing Policy, Discount, Organization, Profits, SMEs, Sales Volume

Introduction

Pricing decision is a decision that must be taken carefully, because of its nature and its effect on the overall goals and objectives of the organization, which is mainly profit maximization. Hilton (2005:633)

Generally, to run any business develop a pricing strategy for a product after performing a marketing analysis is necessary. A pricing strategy is formulated taking into consideration factors of cost, competition, and profit objectives. Possible pricing strategies include a full-price strategy, competitive pricing, discount pricing or a mix of these. In this research paper, we are focusing on discounts pricing strategy. Retailers uses discount strategy as a way of increasing demand, poling share of business away from competitors, and to increase total sales.

Objectives of Study

The aim of this study is to study the impact of discount pricing strategy on organizational profit and the importance of discount planning.

Research Problem

Due to people preference to buy things on sale, discounts play an important role in attracting people to buy and this lead to increase sales volume and thus profits, but the issue that some managers miss-planning which leads them to lose profit rather than to gain.

Research Importance

Discount can help organizations to enhance their sales; however, most organizations usually don’t take into consideration the impact of discount on the long term because they miss planning and testing the discount. This study aims to explain the impact of discount on organizational profit, when the organization must discontinue discounting and the importance of planning for discount.

Research Hypotheses

Ho1: there is no impact difference at (α = 0.05) of discount pricing strategy on organizational profits.

Research Model

An overview of the research model is presented in Figure 1. The model articulates the independent and dependent variables.

Independent variable Dependent variable

(Organizational Profits) (Discounts pricing strategy)(Figure1: Research Model)

The diagram above shows the relationship between variables. It shows Discounts pricing strategy the independent variable. Organizational profits are the dependent variable, which is directly affected by Discounts.

Sources of Information

We have used books, journals, personnel meeting, and various websites to gather information and gain knowledge in order to help us expand prospects in writing this study.

Literature Review

Generally price is defined as amount to be paid for any goods or service.

Different scholars defined price such as Prof. William J. Stanton’s, “Price is the amount of money and/or other items with utility needed to acquire a product.” Prof. Philip Kotler, “Price is the only element in the marketing mix that produces revenue, the other elements produce cost.” Last David J. Schwartz, “Price is the exchanged value of the product or service expressed in terms of money.

According to Agwu and Carter (2014), ‘among the four Ps, price is the only income generator and it is the value attached to a product. It is the sum of all the values that customers give up in order to gain the benefits of having or using a product (Kotler et al 2010).

Pricing is the process of setting the price for products and services at which it will be sold and it may be part of the business’s marketing plan, which is a report that outlines your marketing strategy for the coming year, quarter or month.

Pricing has always been an integral component of marketing (Borden, 1964); of the traditional marketing elements, only pricing creates revenue (LaPlaca, 1997; Shipley & Jobber, 2001). As Morris (1987, p. 79) notes, “one of the more basic, yet critical decisions facing a business is what price to charge customers for products and services.”

Pricing strategy is the policy a firm adopts to determine what it will charge for its products and services. There are several different pricing strategies, such as penetration pricing, price skimming, discount pricing, product life cycle pricing, and even competitive pricing.

A discount sale consists in selling a given set of items at a reduced price for a limited period. Some examples are proposed in (Bolton, 1989), (Blattberg and Neslin, 1990), (Bemmaor and Mouchoux, 1991). This reduction should generate enough supplementary sales to compensate the reduction in income. However, this is rarely the case. Few companies realize the true discount cost. When a product discount is offered for a given period, it applies to all sales, which often leads to disastrous consequences.

One of the pricing policy is discount-pricing strategy, which is defined by most of the researchers that it is selling products in low priced to increase sales volume and thus profit, and it has different type:

1. Quantity discounts: which is offering quantity discounts to customers who purchase in bulk.
2. Seasonal discounts: which is offering discounts to customers who purchase during off-peak time.
3. Promotional discounts: which is offering discounts to customers to drive sales and it is short-term.
4. Loss-leaders: which is offering discounts to customers by selling products at price below its market cost in the hope that they will purchase more profitable goods and services.

Profit is the revenue remaining after all costs are paid. There are three types of profits: Gross Profit, Operating Profits and Net Profits.

Important definitions of Profit according to different authors are as follows:

• Prof. Marshall – “Profit is the earning of management”
• Walker – “Profit is the rent of ability”.
• Croome – “Profit is the reward for uninsured risks”.
• Ely – “Profit is a surplus over and above the expenses of production”.

Also according to economist profit is defined as:

• Profit = Gross Profit – (Rent + Wages + Interest)

According to different studies there is no standard relation between profits and discount it varies according to the case of each organization, but we have concluded that when an organization do a discount it has to increase its sales and production to gain the same margin of profit it used to gain before the discount or it will lose profits.

(Figure1: Relation Between Discount & Profit)

Research Method and Data Collection

Data was collected after conducting interviews with different organizations from their financial and marketing departments, however due to confidential reasons companies refused to provide us with their actual numbers. Table (1) was built with approximate figures.

Most of the organizations’ answers upon purpose of applying discount were matching as follow:

1. Encouraging and attracting customer to buy their products.
2. Incresaing their sales volume and profits.
3. Increase their market shares.
4. High competition.

Data Interpretation

The table below briefly explain how discount impact sales volume and profit which can be adapted as a reference for planning and testing discount ratio.

The table was calculated as follow:

• Fixed Cost = Given Number
• % Profit From Variable Cost = Given Number
• Profit rate from sales (CM) = % Profit From Variable Cost – (% Profit From Variable Cost * Discount Rate + Discount Rate) / % Profit From Variable Cost – (% Profit From Variable Cost * Discount Rate + Discount Rate) +1
• Breakeven Point = Fixed Cost / Profit Rate From Sales (CM)
• The % Of Change In The Break-Even Point = (Breakeven Point x+1 – Breakeven Point x) / Breakeven Point x
• Expected Sales = Given Number
• The % Of Change In Expected Sales = (Expected Sales x+1 / Expected Sales x) / Expected Sales x
• Difference Between Expected Sales & Breakeven Point = Expected Sales – Breakeven Point
• Expected Net Profit = Difference Between Expected Sales & Breakeven Point * Profit rate from sales (CM)
• Net Profit Ratio = Expected Net Profit / Expected Sales
• Expenses Ratio = Fixed Cost / Expected Sales
• Total Expense Ratio And Net Profit Ratio = Net Profit Ratio + Expenses Ratio

(Table 1: Impact Of Discount On Profits)

Case No.

Fixed Cost

Profit % From Variable Cost

Profit Rate From Sales

Discount Rate

• Break-even Point
• The % Of Change In The Break-Even Point
• Expected Sales
• The % Of Change In Expected Sales
• Difference Between Expected Sales & Breakeven Point
• Expected Net Profit
• Net Profit Ratio
• Expense Ratio
• Total Expense Ratio And Net Profit Ratio
• 1
• 1,500,000
• 70%
• 41.18%
• 0%
• 3,642,545
• 0.00%
• 4,000,000
• 0.00%
• 357,455
• 147,200
• 3.68%
• 37.50%
• 41.18%
• 2
• 1,500,000
• 70%
• 38.73%
• 4%
• 3,872,967
• 6.33%
• 6,000,000
• 50.00%
• 2,127,033
• 823,800
• 13.73%
• 25.00%
• 38.73%
• 3
• 1,500,000
• 70%
• 36.34%
• 8%
• 4,127,683
• 6.58%
• 8,000,000
• 33.33%
• 3,872,317
• 1,407,200
• 17.59%
• 18.75%
• 36.34%
• 4
• 1,500,000
• 70%
• 33.23%
• 12%
• 4,513,993
• 9.36%
• 10,000,000
• 25.00%
• 5,486,007
• 1,823,000
• 18.23%
• 15.00%
• 33.23%
• 5
• 1,500,000
• 70%
• 29.97%
• 16%
• 5,005,005
• 10.88%
• 12,000,000
• 20.00%
• 6,994,995
• 2,096,400
• 17.47%
• 12.50%
• 29.97%
• 6
• 1,500,000
• 70%
• 26.93%
• 20%
• 5,569,996
• 11.29%
• 14,000,000
• 16.67%
• 8,430,004
• 2,270,200
• 16.22%
• 10.71%
• 26.93%
• 7
• 1,500,000
• 70%
• 22.29%
• 24%
• 6,729,475
• 20.82%
• 16,000,000
• 14.29%
• 9,270,525
• 2,066,400
• 12.92%
• 9.38%
• 22.29%
• 8
• 1,500,000
• 70%
• 18.86%
• 28%
• 7,953,340
• 18.19%
• 18,000,000
• 12.50%
• 10,046,660
• 1,894,800
• 10.53%
• 8.33%
• 18.86%

(Table 1: Impact of discount on profit)

Case number one:

• Discount Rate: 0%
• Expected sales: 4,000,000 JD
• Expected Net profit: 147,200 JD

Case number two:

• Discount Rate: 4%
• Expected sales: 6,000,000 JD
• Expected Net profit: 823,800 JD

Case number three:

• Discount Rate: 8%
• Expected sales: 8,000,000. JD
• Expected Net profit: 1,407,200 JD

Case number four:

• Discount Rate: 12%
• Expected sales: 10,000,000 JD
• Expected Net profit: 1,823,000 JD

Case number five:

• Discount Rate: 16%
• Expected sales : 12,000,000 JD
• Expected Net profit : 2,096,400 JD

Case number six:

• Discount Rate: 20%
• Expected sales : 14,000,000 JD
• Expected Net profit : 2,270,200 JD

Case number seven:

• Discount Rate: 24%
• Expected sales : 16,000,000 JD
• Expected Net profit : 2,066,400 JD

Case number eight:

• Discount Rate: 28%
• Expected sales : 18,000,000 JD
• Expected Net profit : 1,894,800 JD

As shown, sales volume increased by increasing discount rate, on the other hand expected profit continually increased until case number six. This means the organization must not apply discount more than 20% to prevent loses.

The graph below simply explains how expected profits increases and decrease due to discount rate.

(Graph 1: Impact of discount on profit)

Limitations

1. Time we have to write the study.
2. Non-cooperation of companies to provide us with desired data.
3. Lack of available research paper discussing this topic.

Conclusion and Recommendations

Discount effect organizations by increasing sales volume, but not always increases the profits due to that each organization should do discount planning strategies as well to test discount before implementing it to avoid loses.

During process it was noticed that small-medium enterprise do not take planning in a serious matter which led them to lose. We recommend that all organization should specify departments to do such a plans in detailed.

Future Research

This research was conducted based on unrealistic numbers, in order to get better result real numbers must be used in the future, also we have noticed that most of the research papers were discussing discount as a part of pricing and marketing strategies and few discussed discount strategies individually. We suggest to increase number of research papers discussing this kind of topic, moreover to take in consideration factors affecting the discount effect such as seasons.

References

1. Choi H.S, Medlin B.D, Hunsinger S. (2016), “An Empirical Study on the Impact of Price Discounts on Sales in Software-as-a-Service (SaaS) Market”, Proceedings of the Conference on Information Systems Applied Research, Las Vegas, Nevada, USA, Vol. 9, P. 1-10.
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3. Dudu O.F., Agwu M.E. (2014). ‘A Review of The Effect of Pricing Strategies on The Purchase of Consumer Goods’, International Journal of Research in Management, Science & Technology (E-ISSN: 2321-3264), Vol. 2, No. 2, p. 88-102.
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5. https://www.coursehero.com/file/p36p1rr/Meaning-of-Pricing-PRICING-Definitions-According-to-Prof-William-J-Stanton/
6. http://www.economicsdiscussion.net/profit/profit-meaning-elements-and-characteristics/13943
7. https://en.wikipedia.org/wiki/Pricing
8. https://salespodder.com/discount-impact-on-profit-margin/
9. https://www.unleashedsoftware.com/blog/discount-pricing-strategy-explained
10. Imoleayo O.F (2010), ‘ The Impact of Product Price Changes on the Turnover of Small and Medium Enterprises in Nigeria’, BRAND. Broad Research in Accounting, Negotiation, and Distribution ISSN 2067-8177, Vol.1, No. 1
11. Kienzler, Mario and Christian Kowalkowski (2017). “Pricing strategy: A review of 22 years of marketing research,” Journal of Business Research, Vol. 78, p. 101-110.
12. Kopalle P.K, Mela C.F, Marsh L. (1999). “The Dynamic Effect of Discounting on Sales: Empirical Analysis and NormativePricing Implications”, Marketing Science, Vol. 18, No. 3, P. 317–332.

Analytical Essay on Pricing Strategy: Synergy of Dynamic Pricing in Different Ways

Introduction

Kotler, Burton, Deans, Brown, and Armstrong, (2015), are of the viewpoint that dynamic pricing is considered to be referred as that surge pricing strategy, in consideration of which a business entity sets the flexible pricing for the goods and services it offers to the potential customers and the end market. This price of the goods and services is known to be set on the basis of the demand of the current market and its situation (Kirschen & Strbac, 2018). In this connection, the given paper is focused on determining the past researched studies that have explained the synergy of dynamic pricing in different ways.

Literature Review on Dynamic Pricing

Based on the viewpoint of Babaioff, Dughmi, Kleinberg and Slivkins (2015), it was examined that the problem of designing the revenue-maximizing pricing strategies mechanism becomes difficult for the seller when the same has a limited supply. Concerning to this, the author suggests in the article that the business organization should follow the strategy of posted price mechanism which would ensure that the pricing of the product and services are implemented on the basis of the demand of the customers as well as the availability of distribution capabilities of the organization. In this concern, it was examined that the Commonwealth bank uses the synergy of dynamic pricing as the intermediating algorithm to match the supply and demand that arises in the financial industry.

On the other hand, Jia and Tong (2016), states the problem related to the concept of dynamic pricing concerned to the aspect of electricity in connection to the retail market. The game named as Stackelberg is recorded to be used by the experts with regards to undermining the interactions that exist between a retailer and the consumers of the electricity. The retailers are known to set the dynamic hourly price of the day ahead for the electricity consumed by the consumers. This pricing strategy is known to be set based on the dynamic pricing strategy of the real-time consumption made by the consumers in order to adjust as well as maximise the individual consumer surplus. This dynamic synergy of pricing has recorded to be an optimal aggregated demand-based pricing strategy. Take, for instance, the dynamic pricing strategy used by the Commonwealth Bank in the concern of providing real-time loans to its clients because the same provides the bank with the advantage of more flexible lending to the clients.

Moreover, as opined by Papanastasiou and Savva (2016), when the products that are of uncertain quality are first introduced in the market, the consumers may take time to choose the product based on their purchasing decisions. This is because the consumers would wish to anticipate the peer reviews made for the products. In this connection, undermining the importance of the dynamic pricing, the articles suggested that the synergy of dynamic pricing strategy would help the organizations deal with the sale of these kinds of products. This is because social learning affects the strategic decision and interaction that lies between the monopolies of the dynamic pricing as well as the population of the customers that is looking forward to buying the product

As opined by Den Boer, (2015), the synergy of dynamic pricing and its learning have turned its coins in recent years from the help of the different scientific communities. In this connection, the precise aspect of the importance of the dynamic pricing strategy in the subfields of the marketing, economics, finance, econometrics, as well as computer science has been discussed. It was undermined with the help of the article that the author has explained the relationship that lies between the methodology of surge pricing strategy and the success of a business entity. The author also identified that the aspect of surge pricing would help give directions to the future success and research of any productive business organization. Concerning to this ideology, the Commonwealth bank uses the surge pricing strategy in its business transactions because it increases the capability of the concerned financial organization to re-bundle their needs and cross-sell their services to the clients.

According to the viewpoint of Chen and Farias (2018), every business organization should consider the system of the canonical revenue management in the concern of selling any product over a finite horizon of customers under the theory of posted price mechanism. The dynamic pricing mechanism will help the customers choose their desired products and services on a random over time and strategic basis of their purchases. This, in turn, will increase the interest of the customers about the time of their purchase and they will make sure that the goods and services are purchased over time. Customers would not like to purchase any goods or services at a high price because of the timing, unless and until the same is determined to be an emergency for them. In light of this, the article was concluded with a statement that the mechanism of the surge pricing could be stated to be optimal for both the customers and the business organization. Comparing this aspect with the business transactions of the Commonwealth Bank, it is undermined that the flexibility in the contextual awareness of the client needs of the bank is increased with the use of the surge pricing method. This, in turn, also increased the loyalty and stickiness of the clients connected to the Commonwealth bank.

Case Study Analysis

Based on the analysis of the case study named as CommBank Retail Insights, it is undermined that the impact of pricing strategy primarily affects the marketing condition of the products as well as the services that are offered by the financial firm of Commonwealth bank (Commbank.com.au. 2019). As opined by Porter and Heppelmann, (2015), the customers are profoundly sensitive towards the pricing strategies a business implements on the products and services it offers to the customers. This is because the customers in the current market condition wish to purchase the best of the goods or the services at the lowest of the price (Nagle & Muller, 2017). The price theory connected to the marketing mix is determined to be the most complex one because the same is recorded to change the purchase decision of the consumers on the first paradigm as compared to the other theories of the marketing-mix that are related to place, people, promotion a process (Becker, 2017).

Commonwealth Bank in 2011 stepped up its discounts but re-instated them this year clearly demonstrating its aggressive pricing policy. Commonwealth bank captures the home loan market by pressurising net interest margin by providing big package discounts. Commonwealth bank has become most competitive in $300,000 home loans and $1,000,000 loans by adopting ‘barbell’ pricing strategy, due to which they have the cheapest EAR of 5.3% on $300,000 loans and 5.15% EAR on $1,000,000 loans clearly indicating that is giving equal importance to the smaller & jumbo loans (mba sKOOL.com, n.d.)

Therefore, it can be stated that financial organizations can effectively use dynamic pricing strategies as per the demand response of potential customers.

Conclusion

Given the above research findings based on the pricing strategy of the marketing-mix theory, it can be seen that the pricing method is recognised to be an optimal strategic implementation that can be taken into consideration by any business organisation as the customers change their purchase decision mainly depending on the price of the products. When comparing the findings from the literature review on dynamic pricing method with the real world case-study of Commonwealth Bank, it can be seen that the financial firms can turn flexible on the effective use of the surge pricing method and also gain the sustainment of their potential clients for a more extended period of time. However, the point of dissimilarity that arises s that the customers do not will to purchase the goods or services at a higher price of the timing of the surge pricing unless and until the same is an emergency for the customers and this would turn to be a loss for the business organisations.

Case Study of Lululemon: Analysis of Pricing Strategy

Case Summary:

Lululemon a well-known athletic apparel company, founded by Chip Wilson, who initially embarked in the surf, skate, and snowboard apparel business for more than 20 years, when in the mid of 90s was introduced to Yoga for the first time, he got hooked and moved into the yoga trend at just the right time.

In 1998 in Vancouver, Canada Lululemon was developed and defined as a yoga-inspired, technical athletic apparel company for women and men. The first designs that brought the company name into the market were made for women to wear during yoga.

Lululemon uses vertical integration model. All Lululemon products are made only in Lululemon-approved factories. Additionally, Lululemon products are only available at Lululemon retail stores, or online at their Lululemon website. The company has a no discount strategy, and for all products that are old stock the company sells them in a very modest discount either in special selected stores or online.

The main differentiation offered by the brand is the offering of their first unique fabric, their own signature ‘Luon’. With their new approach to athleticwear, Lululemon paved the way for offering high-quality and performance athletic apparel, available to customers at a very premium price, priced higher than most of the competition setting the brand at a higher position than the rest. Lululemon’s strategy was clear when the founder was able to highlight a gap in the fitness-fashion industry that Wilson successfully seized the opportunity to control a considerable portion of.

Initially, the brand started by an objective to focus on a specific segment of the market the yogis. As the brand started growing it continued to adopt a focused differentiation strategy based on its brand identity, however with the extended line of apparel athletic wear, its market segment started growing to target a wider range of user.

The success of the brand was not only for yoga practitioners and yogis but also other athletes and customers looking for fashionable and functional apparel even for their daily use, setting the brand to influence a new dimension of a product that represents a lifestyle with core values of promoting a healthy, active socially responsible brand.

There are many reasons as to why consumers buy Lululemon products.

• the high quality of all products. Products from the company are meant to last for a long time and not show wear and tear through the times.
• Lululemon product is comfort. The design of all Lululemon products includes the key concept of comfort. All customers feel comfortable while wearing or using Lululemon products. They feel free to move as they wish.
• Lululemon products are stylish and innovative and always up to date.
• Lululemon products are constantly changing but always ensuring to keep the basic collection which is the most favorite of their consumers.
• Products for athletic consumers have to be comfortable and have to perform well, and lululemon products due to the material used offer both.
• Lululemon products are considered order winners as they stand out from their competitors due to their high quality, style, and innovation.

Q1- Relative to customer value, explain customers’ willingness to pay premium prices for Lululemon’s products.

Since Lululemon uses competitive pricing strategy with a premium pricing approach versus its competition, it is also part of customer value-based pricing strategy, where the brand clearly has something more to offer than the competition, and accordingly sets a higher value perception to its customers, and the willingness of the consumers to pay a full price based on their set perception of the brand and the value it represents.

There is no secret formula for Lululemon’s pricing strategy, its basically the product benefit and its offering as a functional garments at a high but consistent price point, the continuous set strategy of no or minimal discounting, even in peak sale periods, give a clear understanding to customers willingness to have to pay full price.

The brand entered the market with a skimming pricing strategy targeting a certain segment, as the segment grew to become a trend and a lifestyle the brand was able to grow, moreover, the startup of the brand was using all the yogi trainers who are role models to their teams, so this furthermore helped the brand attract more of its customers (the yogis and athletes) who are ready to accept their price and willing to pay for the value not only but as a product but a lifestyle.

Consumers buy fancy-branded luxury goods because it makes them look and feel good, the same applies for Lululemon target audience who believe Lululemon products are a statement, a lifestyle and a mean to live by

Q2- Based on principles from the chapter, explain how price affects customer perceptions of the Lululemon brand.

Lululemon has used customer value perception model in its pricing, the prices for their basic products have been set higher than the competition but not too high, so it stays at the range of price celling, where no demand will be available above this level of price, this value is set purely by the mindset of the consumer and the perception he has for the value offered.

Since the pricing is made on the buyers’ perception value rather than the sellers’ cost, Lululemon created special products, with special features to meet a niche market segment by creating a new demand which never existed before.

At Lululemon offers an extremely high-quality product for a high-price that matches the value of the product. When looking at the major pricing strategies, Lululemon definitely engages in customer-based value pricing. This means the company prices products based on the benefits and value it brings to customers.

Lululemon’s products want to be perceived as innovative and cutting edge in the athletic apparel industry.

Q3- Could Lululemon have achieved the same level of success had it executed an alternative pricing strategy?

In my personal opinion, Lululemon did the exact right pricing when it introduced the brand, by simply pricing it higher than its competition and immediately positioning it at a higher level. It is a proven fact that companies have more success with premium pricing when they concentrate on creating value that makes their products worth the higher prices.

Lululemon used a premium pricing strategy and thus they charge higher prices than their competitors for their products. They have set a goal to create the perception that their products must have a higher value than competing products because they offer something the competition lacks and thus their prices are higher. Lululemon used the premium pricing strategy to establish its product as a high-quality product in the minds of consumers.

Since the premium pricing was introduced based on the following situations for lululemon, I think having a different pricing wouldn’t have led the brand to reach the same level of success, from its start the brand had all it takes to be priced higher than the market and the competition

• From its early introduction Lululemon introduced Premium pricing which is the most effective way if established when a product is first introduced to the market.
• Lululemon products are unique. Small businesses that have unique products can differentiate their merchandise with higher prices and a quality image.
• Lululemon Consumers perceive that the product high-value value luxury product and has exceptionally high quality and provides comfort with an exclusive design.
• Simply by setting the higher point of pricing Lululemon created a strong barrier to entry
• Lululemon created a product patent only for the brand, that gave the brand special feature and set its unique selling proposition and thus the higher justified price then competitors

Q4- Can Lululemon continue to succeed by employing the same premium-pricing strategy? Explain.

I believe in today’s world though a consumer would always want to get the best prices but offering your brand at a discount can undermine profits and threaten viability.

I believe Lululemon should exploit more strategies to keep on designing and creating a difference in its brand vision, product and innovation, so it always gives its consumers a justified reason to spend more by buying lululemon products.

Lululemon has done an enormous achievement by identifying the right audience and understanding their needs and demands and creating products to meet with those demands, then they have gone further by understanding their competition what is more based on this they have built a unique product that has a unique characteristics , and finally they have built a brand with a meaningful difference, always ensuring to set the mindset of their consumers to perceive the brand as premium and worth a higher price.

Changing their pricing strategy and moving from premium pricing would jeopardize the brands image and will drastically affect its position.

This consistency is key to brand success, this is different from premium brand pricing where the product is freely available to those willing to pay the price. In premium consistent pricing strategy the brand aims to display the quality and experience associated with a product, setting it on a different dimension from its competition, any change to this method of pricing will result in loss of trust in the brand and accordingly loyal consumers to the brand will start shifting from the brand.

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Main Factors Determinants That Influence the Export Pricing Strategy: Analytical Essay

Abstract:

Export pricing strategy is considered to be a fundamental tool for market growth, lack of literatures still exists. The gap is related to lack of both qualitative and qualitative studies specifically for small businesses which can produce an improvement in the industry and for managerial directions which needed to in exporting practices. Through this paper is aiming to explore the main factors and determinants that influence the export pricing strategy.

Introduction:

Pricing strategy can be regarded as an organization’s plan to objectively set prices in a competitive basis in order to achieve it objectives, that linked to the implementation of pricing strategy that can be explained by its behavior and execution, and performance. (Walker & Ruekert, 1987). According to Porter1980, price implementation is formed in way to achieve planned strategic pricing goals and objectives. The supposition of pricing strategy consider an interlinked part of the organization dimension (Motivation, Mentality, and interpretation), (Dutton, 1988). Though, Mintzberg suggested that pricing strategy part of future activities planned, which very sensitive to changes from internal and external factors observed from the business environment.

On other hand, Nagle and Holden suggested that strategy configuration and strategic analysis are elements of pricing strategy, this set of activities of price planning may be share common factors such as time terms, future-looking, and target orientated. The result of pricing planning is tending to be complex and not standard in a specific way. The planning strategy is not focused only on single transaction or event but a set of categories of marketing mix segments, classification, and competitions. Which all based on strategic agenda, the critics on the strategic agenda is can espouse the strategic plan to such high instability, therefore the current pricing issues on the strategic agenda, depend on the expected result of pricing problem on the company’s goals achievement. Therefore, firms’ actions will be implemented if oly managements believe that strategic pricing matters have a reasonable impact on the firm.

This bring up the importance of firm’s obligation level on export activities, and if exports are perceived as a significant part of the overall firm strategy, then pricing strategy will have to play major role in firm plan. Such decisions normally will be taken by senior management, best-practice companies have a pricing committee responsible for the pricing decision-making process, to establish procedure and commitment. Because price eventually impact on profits, the marketer has to set the right price otherwise negative impact will appear on financial result (Raymond, Tanner, & Kim, 2001). (Weekly, 1992)

literature sight that marketers face certain challenges in export pricing, such as competition, grey markets, economic zoon, regulation, fluctuation in exchange rates, and geopolitical (Cavusgil & Sikora , How multinationals can counter gray-market imports, 1988) (Myers, Incidents of gray market activity among US exporters: occurrences, characteristics and consequence, 1999),(Myers. et.al. 2002, Weekly1992). Though, literatures indicate that export pricing strategy (EPS) is influenced directly by micro-factors, nature strategies and practices. In this paper we will analyse three main export strategies factors.

2. Exporting Pricing (EP)

According to (Tan & Sousa, 2011)The phenomena of EP can be described as the hidden forces that drive firm’s EP decisions, consider skimming pricing strategies which includes high price and more often used for new pricing, which come under umbrella of differentiations where the firms hold a important cost advantage. Cavusgil and Zou, (1994) suggested four factors that attributed to the configuration of (EPS).

First, EPS is influenced by organization and management attitude which is translated by the managerial capability, expertise to have high probability to create and effectively execute EPS and to achieve competitive advantages, and firms’ factor such as size, internal resources, location, and centralization (Douglas & Carig, 1989). Second, products and services factors; emerged from the theories related to products/ services exported, which have a significate influence in EP which considered as core factors in pricing decisions such as ( Product range, type, cost structure, and stage on life cycle as most important factors( Myers and Cavusgil, 1996), where cost is the most used as benchmarks in price determination because it minimum price which cannot be accepted in long-term.

Third factor is associated with industry nature; which referred to market structure, regulation, degree of innovation which is the most important in global competition due to the fact that advancement in technology regarded as success factor (Abratt & Pitt, 1985). Fourth, the difference between local and abroad market; which result of the environmental difference between local and foreign market such as currency volatility.

2.1 Export pricing strategies and practices.

(Tan & Sousa, Research on Export Pricing: Still Moving Toward Maturity, 2011) suggested that this group of factors based on manager experience that influences the EPS namely are; Competitive position, price fundamental, price process, and practices. Which they will be examined in detail her after.

2.1.1Competitive position

Since mid of 90s export market gone through major development du to rapidly advancement in technology and reform of regulation as well as economic fundamentals (Simon,1995). In fast pace environment change happened very often which is explained by increase in use of differentiation, in some particular markets the client base is equally homogenous and provided by various sellers with certain technologies. (Tellis, 1986) argues that in such a situation with this type of buyers the level of differentiation become less attractive in terms of superior advantage and sales driven by competitive price, this theory call to the adoption of a competitive pricing position.

Where in competitive pricing strategies, rivals’ prices are lively reviewed, and the objective is to set price at the same level of competitors. But this approach embodied disadvantage rivals in export market, as domestic market will not be affected by this factor regarding the differences between domestic and foreign marker. For instance, economic and regulation reform effect only external marketers not local rivals. On other hand Myers et al, 2002, demonstrated that marketers adopting this strategy, will constrained their pricing strategies to competition, setting their level of prices at either more and less than their competitors’ prices. In addition, (Kirpalani & Macintosh, 1980) (Mintzberg, 1987) suggested that international experience in positively correlated to export performance and because of pricing is element of marketing strategy, the selection of the adoption of competitive export pricing by management will be enabled by the company’s international experiences. C suite commitment in competitive pricing is in line with degree of importance of the management grant to exports, according to Gundlach 1996, company that engage in competitive pricing strategy such as predatory, fix prices to low level or reduce profit in short terms in seeking long term profit margin objective, and it’s the long term strategy which deliver profit with high commitment to pricing strategy.

Moreover, currency influence the competitive pricing strategy, one of competitive tools of currency is the strategic choice by marketer when they in country with a weak local currency, therefore the price can be used in way to overcome market share gain. Though, in a situation where the export market suffers from currency depreciation, which will affect the marketer competitive advantage, also when the export market hit by high inflation rates, the marketer can use the competitive advantage as aforementioned, with weaker currency, setting the prices below the domestic competitors without losing profit.

3. Price Setting Fundamentals

Price setting concepts is managerial principle used by companies to enable their pricing strategy, it included manly four concepts, pricing objectives, centralization, method, and orientation which we will examine in more details.

First, pricing objectives (PO) is the first step in determine the EPS, its logical to define pricing objective as strategic and economic goals, set by management in product or service pricing, (Diamantopoulso and Mathews 1995). Which reflect not only a company’s export factors but also represent the pricing aims of the company as part of overall corporate strategy (Morris and Morris 1990), change in the markets at different stage of product life cycle also differ within the markets, result in changes in pricing objectives frequent change over time. Sight found in literatures found several pricing objectives segments related to content, the desires level of achievement, and the associated timeline, in addition Morris 1990 suggested 21 different objectives, which can be profit or competitive positioning ( Samiee, 1987). Such as return in profit (RIO) and growth, where competitive objectives are barriers to entry, markets hare, and matching competitors’ practice.

According to Guiltinan and Gundlach, (1996) PO can also contradicting and same time complementary, subjects to hierarchical concern, because of this contradiction derived from temporal problems, related to mismatch of short/ long terms objectives that are not well connected to each other. Hence PO are influenced by pricing factors for instance, at the stage of produce life cycle, at the time of product/ services changes status from new to mature status the PO also should change; at the start stage is common to have profit orientated objectives, where in mature stage is common to adopt a competitive orientated objective (Porter 1986). In addition, in market growth, when competition within the market intensifies it will be required to adopt a competitive position in order to survive, (Simon 1995). Moreover Cavusgil 1996, suggested that exchange and inflation rate fluctuations affect the PO, because are fundamental elements for pricing decision.

Second centralization of and EPS; its men the level organization at which the price decision is decided, who is responsible, or level of duty assigned, is important for EPS. Exporters have to manage different customers preferences and demands that totally different from local. Therefore, (Anderson , 1985) suggested that the sales people play major role, sales man has to deal directly with demand of customers and most of the time sale point decision increase the responsiveness of well-informed customers. Hence, any division between salespeople and management because of the former is usually focused on sales volume and its factors, on other hand management is usually more concern on profit figures. Regardless of the fact that sales people have limited awareness of the determinants that effect the costs, salespeople remines the at last stage of centre of decision control because its has to deal with different preferences of customers that are taken into account to address price objection to them and they better meet the client needs (Winkler, 1983).

The third concepts of EPS related to the method used, which is the exact way of calculating and achieve the price, there are many methods to calculate the price and they differ depend on the industry, product types, and production and distribution channels. For that, many organizational and environmental factors affect the method used. The most well knowing method are either market-based or cost-based, the cost of product and resources which they influence the pricing strategies, used as base for a price determination. The drive is, the costs provide minimum prices for long term, cost are easy to implement, setting the prices covers the cost and mark-up profit. Cost-based pricing strategies are sign of firms that seeking profits, particularly for companies with short-term expectations within the markets ( Cavusgil 1996).

In price sensitive markets, EPS formed taken into account demand and competitive spectrum result to be more appropriate than cost-based pricing. At some point choice to adopt a market-based strategy is driven by the fact that are operating in intensive competition markets and the prices are chosen the market leaving little room for discretion for the marketer, this is approved if the latter is not a market leader. According to Myers et al, (2002) “firms adopting a market-based approach focus on the customers’ ability to pay for the product/ service, or the value placed on that product, or both”. For instance, EPS set to penetrate the market, the practice to set a low price for new product in order to accelerate the adoption and establish in this tactic normal standard. Last concept of EPS is price orientation, Smith and Meiskins 1995, where the first to explore it, and based on behavioural account of managerial pricing orientations such as cost, sale, competition, strategic pricing. Pricing orientations are the factors that affect managerial choices of pricing strategies and are directly connected with the firm. Such, (Product life cycle, no of competitors, marketing costs, logistic, foreign customers, production costs).

Conclusion

The concept of EPS which examined the factors that are considered as an integral part of the general strategy and their sub-factors impact result of internal or external environment. These factors are outlined in literatures, in the business economic environments in which the companies operate and directly affect EPS decision. Factors can have different route identified in four main categories; namely (Industry, product, managerial and countries differences).

Its important to take into account four aspects of EPS; competitive position if the firms is operating in highly competitive markets and the level of standardization is high; the pricing aspects related to the methods used in price setting, the hierarchy and who take the decisions, the objectives of export pricing orientation; the price cycle-related mainly to quotations, the level of control and frequency of pricing renegotiations.

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Sales Strategy for Selling Yuesai Cosmetics’ Ganoderma Lucidum Product to UK Market: Analysis of Pricing Strategy

1.0. Introduction

Internationalization present great opportunities for international companies to exploit new international market opportunities with a goal of higher customer reach to increase sales revenues, profitability and overall growth of the companies. Yue-Sai Cosmetics has changed the face of China through its recognition as a completely owned foreign cosmetic company in 1990. The company starting from zero in 1990 in the cosmetic segment has made efforts and improvements that have seen it become a favourite brand enjoying a brand recognition of 95% (Yue-Sai, 2019a). Its acquisition caused further growth of Yue-Sai Cosmetics by L’Oreal, the largest cosmetic company in the world in 2004 which helped the company in its developing beauty products for Chinese women (L’Oreal, 2019). The most famous products of the company include Ganoderma Life, Cordyceps Huanyan Constant Colour, perfection cream, custom essence, and skin cream. The specific product that the current study plan to recommend for an introduction to the UK market is the Ganoderma lucidum product due to its unique natural features specifically being 99% natural (Yue-Sai, 2019a). According to Vox (2018), the demand for natural products has been increasing due to increasing concern for healthy consumption and health effect of non-organic-made products. Therefore, the introduction of this product in the UK, Ganoderma lucidum may be viable based on the unique organic features of the product. In order to introduce the product in this new market, the goal of the essay is to introduce the product features and benefits, target client segment, the pricing strategy for each segment, the value proposition as well as sales channels with the sale techniques for each channel.

2.0. The Product to the UK

The product that we choose to introduce in the UK is the Ganoderma Lucidum which is suitable for all skin types. The Ganoderma Lucidum contains pure Qiongyuan extract condition liquid which makes it have a limited edition (Yue-Sai, 2019a). The product is made of Lingzhi mushroom which is a traditional Chinese medicine and has mainly been used for skin care due to its anti-oxidative effects when it is supplemented. Specifically, the product was mainly recommended traditionally due to its therapeutic effect on insulin resistance, reduction of prostate cancer risk. The product has an anticancer effect on the body and increases the skill cell activity if used as a lotion as Yue-Sai Cosmetics. Besides the benefits of the Lingzhi mushroom raw materials used in the product, the product has other benefits and features which are illustrateded in Table 1;

Ganoderma Lucidum Product Features

Product Benefits

• The product ingredients are Ganoderma Lucidum, which is an original product of Huoshan used for traditional Chinese skin medicine, extracting organic purity of more than 99%.
• Has curative features that can help in reducing the chances of skin problems and diseases such as dullness, roughness, and loss of elasticity
• The product is packaged in 150ML packet sold at ¥360
• Enhances the skin breathing
• Smooth and translucent when applied to the skin.
• It reveals the skin new radiance
• Promotes skin health benefits in addition to reducing the chances of skin cancer
• Fit for skin problems such as pores caused by night, day and nights as well as fatigue
• 99% produced from organic raw materials so have no skin side effects.

Table 1: Ganoderma Lucidum Product Features and Benefits (Yue-Sai, 2019b).

The product benefits of Ganoderma Lucidum brand make it appropriate for the UK market because they have a range of different choices for this product as shown figure 1 for facial repair, fresh essence, lipstick and Ganoderma Lucidum body lotion applied in complementing way.

Figure 1: Ganoderma Lucidum brand (Yue-Sai, 2019b).

3.0. The Target Client Segment

The three main target client segments that we would choose are based on the rules of Business to Customer (B2C), Business to Business (B2B) and Business to Government (B2G). These three categories are identified in the table below with a suitable product that would fit the target client category.

Target Client Segment

• The Target Segment Description
• Big Retailers
• · Tesco, Boots, Sainsbury’s etc.

(B2B)

The business who directly selling the products to companies can either buy them as raw materials and further process the cosmetic product or sell it to their specified category of consumers. In this case, the B2B in the UK would fit customer segments in big markets such as Boots, Tesco and Sainsbury’s where we would sell the products directly to these big retailers who would further sell the products to consumers without direct engagement by Yue-Sai in marketing activities.

The advantage of using this strategy is that the once it has established the target customers and relations have been formalised, the company is assured of huge and consistent sales. However, the limitation of this is its limited to control the distributors pricing (Raus et al., 2010).

• Female between the age of 18-35 who likes beauty

(B2C)

As we need direct contact with consumers and need to establish our distribution channel. Therefore, this can be done through establishing direct offline stores that complement online shopping which can act as customer collection points. In this case, the target customers would be young UK female consumers between the age of 18-35 years who greatly mind about beauty, appearance or even modelling and would love flawless skin. The key product categories for this target segment would fit in skin care products with different brands such as facial repair, fresh essence, lipstick and Ganoderma Lucidum body lotion applied in complementing way.

The advantage of adopting the targeting strategy is that the business is easy to penetrate to other new markets in addition to being able to interact with the customers directly.

• Government pharmacies and public health centres

(B2G)

The target customer for the public sector would be the public health sector due to the curative properties of the skin care product produced by Yue-Sai. We are aiming to sell to the government pharmacies and public health centres with facial repair, fresh essence, due to their curative skin measures. Furthermore, the product is also suitable in this target segment due to its use in preventing skin cancer among other related skin allergies and problems (Yue-Sai, 2019b).

The benefit of adopting this targeting strategy is that it is easy to do production and sales quoting in addition to a guaranteed specific market share. However, the disadvantage of this strategy is that intensive documentation is required in addition to low sales margins because sales are made when the sales stock is replenished, and there might also be many negotiations leading to highly lowered prices (Scheulovs & Gaile-Sarkane, 2010).

Table 2: The Target Client Segment

4.0. The Pricing Strategy for Each Segment

There are key factors highlighted by Lobel et al. (2015) that are required to consider when setting prices for products. The first factor is the cost of the product which is important in understanding the cost at which the products have been produced with and that which the business must not go below to earn a profit. Furthermore, the company objectives determine the pricing strategy because it helps to understand the profits the company wants to earn and the prices that can help earn a profit. The level of competition, customer needs, and characteristics, as well as economic conditions, determine the prices of products in new markets (Lobel et al., 2015). For instance, in highly competitive markets and harsh economic conditions, lower price than competitors might help the business penetrate the new markets while customer perception either product as a luxury or essential may impact the pricing as higher than the market. In consideration of these factors, three pricing strategies can be implemented when using B2B, B2C or B2G target client segment as table 3 shows.

Pricing Strategy

• The Pricing Strategy Features
• Client Segment Fit
• Penetration price Strategy

The penetration pricing strategy is that the business using a lower price than the normal market rate to make faster the process of market penetration. This strategy is appropriate in increasing the market share where product acceptance is low (Lowe & Alpert, 2010). The appropriateness of this pricing strategy is that new competitors are discouraged from entering the market niche if they mistakenly see this pricing strategy as the long-range prices of the industry. However, the limitation of using this strategy is that the company must be willing to sacrifice some of its profit to penetrate successfully (Spann et al., 2010).

We plan to use penetration price strategy on B2B clients which are those big retailers. Basically, we will be selling the products to our taeget customers for lower prices than what the competitors are selling and further renegotiate for better prices after the market has fully been penetrated. Therefore, if B2B customer is targeted, then the penetration price strategy will be adopted to attract businesses.

The average current price is at ¥360(£40.59), and the prices can be set lower at £34.99 to attract businesses.

Skimming price Strategy

The skimming pricing strategy needs to set a very high price in a market for a limited period before it is reduced to a more competitive level (Lowe & Alpert, 2010). It is assumed in this strategy that customers are willing to pay relatively high prices because they see the products as either essential, luxury or prestigious to them. However, the skimming strategy is only practical in situations where the threat of competition is shorter or where there is a need for rapid cover up for startup cost.

The skimming strategy is suitable for products are viewed as prestigious. Yue-Sai Ganoderma Lucidum is considered to be highly prestigious and bought by female middle-high income level consumers. For this reason, we plan to use skimming strategy when entering the UK may be most appropriate in the B2C segment to identify how the consumers value the new product. Later on, the business may re-adjust the prices higher or a bit lower to meet the consumption demand.

Considering the current average price is at ¥360(£40.59), products can be set at £49.95 to see the customer reactions and later be lowered to £47.99 to meet the current market price of UK cosmetics category (Euromonitor, 2018).

Variable price Strategy

Variable pricing strategy is suitable for which more than one product is offered to and there is a concession with specific customers (Ingenbleek et al., 2013). Various reasons may lead to offering variable pricing strategy, one of them being the bargaining strength of consumers in addition to customer knowledge about the product. While the benefit of this pricing strategy is that the company can charge more when it wants to identify the financial strengths and desire of the customer to purchase the product. One key limited factor is that there is high bargaining power by the buyer which making the company charge very low therefore reducing its profitability.

The variable pricing is appropriate where the client or customer has high negotiation power. In this case, it can be applied in the B2G customer segment because the government has higher negotiation power than us. This will cause we selling products at lower prices than the market price, but due to consistent sales and guaranteed payments, the target client segment is still viable.

Table 3: Pricing Strategy for Each Segment

5.0. The Client Value Proposition

Based on table 2 of the most suitable pricing strategy, it is showed that the most feasible client segment would be business to customer segment due to a high value in terms of quick and high returns in addition to the high need in the UK for organic cosmetic products by consumers as cited by Vox (2018). Vox (2018) further notes that consumers are not only scared of the rise in chemical use in cosmetic products but are shying away from non-organic products making Ganoderma Lucidum brand appropriate for the target market which is young female consumers who have a taste for beauty between the age of 18-35 years. In this section, the environmental scanning, competitive analysis and sales, and promotion channel strategy are evaluated.

5.1. Market Research and Environmental Scanning

The PESTEL framework critically assesses the firm’s macro-environment to help understand the forces in the external environment and address them. Table 4 provides critical PESTEL evaluation and impact on the Cosmetic industry.

• Environmental Forces
• Critical Assessment

Political

The key political environment that may affect non-domestic cosmetic companies in the industry is Brexit. Following the UK withdrawal from EU, the terms may affect the political, legal and economic framework which may directly impact the cosmetic industry. For instance, the Brexit may lead to high importation cost due to trade barrier cause non-domestic cosmetic firms impacting Yue-Sai Cosmetic as well (Market Inspector, 2018). However, the targeted reduction of taxes from the current 19% to 15% by 2023 may act as an advantage for the cosmetic industry companies because the reduction means higher profit after tax (PKF, 2019).

Economic

The UK GPD grew to 1.3% in 2018 and is expected to increase to 1.6% in 2019 which shows a better economic performance (PWC, 2018). The good economic performance in the UK means beneficial business environment for both local and multinational cosmetic companies. Furthermore, the unemployment rate went down from 5.4 in 2015 to further 4.4% in 2017 and 4.1% in 2018 as showed by Statista (2019). This means that the dispensable income is high and customer purchasing power for cosmetic products has increased over the years which is a positive indicator for the growth of this industry.

Socio-Cultural

The ageing population in the UK is on the rise which means that the customer segment for young women between ages 18 and 35 years tends to go lower, which means negative signs for cosmetic firms that target this customer category (Kaynak & Kahle, 2019). However, the perception of beauty among the UK is positive and high and young women value their beauty as a way of reflecting their personality and feminism. In addition to the fact that there is a high demand for organic products due to the rise in cosmetic products that have high chemicals, companies selling organic cosmetic products may benefit (Vox, 2018). Therefore, there is a market opportunity for an organic product which our product Yue-Sai Cosmetic can exploit.

Technological

With the current advancement in technology especially the internet technology, online purchasing and consumption have been enhanced in the cosmetic industry. Companies are using e-commerce platforms such as Amazon to ensure high chances of sales considering the high brand names (Han & Kim, 2019). Therefore, such platforms can be beneficial for new entrants who can benefit from the high-value proposition of Amazon and other online channels.

Environmental

The beauty industry in the UK is now focusing on going green and organic. Specifically, there is a need for eco-friendly packaging due to the high emphasis on ensuring less stress to the environment when consuming cosmetic products (Li & Leonas, 2019). Furthermore, the growing concern on plastic packaging in the skin care segment which Yue-Sai Cosmetic products are sold promotes the company to use greener packaging techniques which Yue-Sai Cosmetic can adopt. Furthermore, the company can thrive in the industry because its products are 99% natural and have no heavy chemical ingredients.

Legal Environment

Finally, the legal forces that affect the cosmetic industry in the UK are ingredients regulations. FD&C (Food, Drug and Cosmetic Act) and FPLA (Fair Packaging & Labeling Act) are some of the regulations that the cosmetic industry has to follow. FDC ingredients used to ensure that customers are not misinformed as well as ensuring that the ingredients are not harmful for health (Smolinske, 2018). Therefore, companies entering the UK should understand these regulations to avoid legal implications that might affect the operations of the business in the UK.

Table 4: PESTEL Analysis

5.2. Competitive Analysis and Comparison

Porters’ five forces have been used as a good measure to understand the level of competition helping existing and new entrants understand the level of competition. Table 5 shows the Porters Five forces analysis for the UK cosmetic industry.

• Porter’s Five Forces
• Critical Assessment

New Entrant threat

The threat of new entrant is high because of the competitive nature of skin care and cosmetic products which attracts new entrants leading to decrease profits for existing companies. However, some of the entry barriers include strong brand Identity, high cost of manufacturing set up and moderate level barrier in accessing distribution channels and retaliation from key competitors (Haung et al., 2016). However, Yue-Sai Cosmetic may reduce these barriers.

Threat of Substitutes

There is a relatively low threat of substitution from homemade remedies and other skin care products that contain natural ingredients. This type of products is mainly in rural areas, and most UK women take such products as outdated (Nadkarni et al., 2016). Furthermore, the buyer preference and switching cost to substitute are low which means that our product, Yue-Sai Cosmetic, may offer the option to such women who would require natural ingredients which are 99% of the company product.

Supplier Bargaining Power

There is low supplier power because there are large suppliers in the industry and low input differentiation (Laba, 2017). The threat of forwarding integration and specific switching cost exists in low limits and impact of switching to substitute suppliers is also low which makes it possible for Yue-Sai Cosmetic to acquire suppliers for natural raw materials easily.

Buyer Bargaining Power

Due to the availability of the products and increased competition, the bargaining power of the buyers is relatively higher. This gives them a higher position to influence prices which further affects firms’ profitability. Specifically, the higher bargaining power by consumers may force firms to reduce prices because consumers can switch products with low switching cost (Haung et al., 2016). Therefore, unique products are needed by UK female consumers where Yue-Sai Cosmetic comes in because of our natural organic Ganoderma Lucidum brand.

Competitive Ribaldry

The competition in the sector is very high especially from international brands such as Clarins, Espa, Elemis and other local companies. There is a medium degree of differentiation in addition to high barriers to exit and negligible difference among different brand’s products (Laba, 2017). Therefore, for a company to develop in this market, it must enter with a unique brand proposition such as Ganoderma Lucidum brand which is more than 99% pure organic.

Table 5: Competitive Analysis and Comparison

5.3. Promotion and Pricing Strategy

The target client segment was selected in Table 2 as B2C so as the company can target female customers aged between 18 and 35 years who have a great taste for beauty. The pricing strategy was identified in Table 3 as being skimming pricing strategy because the skin beauty products are considered as prestigious and lowering the prices may make consumers question the beauty products (Euromonitor, 2018). Therefore, the current price in China for the Ganoderma Lucidum brand is at ¥360(£40.59), increasing the price by 23% to £49.95 may help test the most appropriate price for the product and later change the prices lower if the consumers complain of higher prices. This pricing strategy is feasible considering that the UK economy has been growing and consumers have higher income to spend on prestige products. Furthermore, considering the need for organic skin care products which our products address, this pricing strategy is appropriate as it makes the product look prestigious to the target market (Lobel et al., 2015.

In addition, this pricing strategy will be accompanied by some promotional strategies such as sales promotion and publicity. The use of personal selling and telesales in itself will act as a marketing technique for the product as the company calls different dealers and prospect customer segments and physically sends personal selling representatives to advertise the brand (Spann et al., 2014). Furthermore, discount and delivery of products purchased online for select customers based on London will help market the products because consumers will be motivated to buy the product online considering the free delivery and high discount for products bought in bulk. Use of publicity through public figures and celebrities in the UK engaged in different modelling, and sporting activities will help attract female consumers who admire to be like such celebrities.

6.0. Suitable Sales Channel for Ganoderma Lucidum Brand

A sale channel is viewed by Jobber et al. (2011) as the route to be taken by goods through the process of selling to customers from the supplier. While sometimes the channel is direct especially when goods are incorporated in the process of manufacturing, others are indirect where goods are sold through different channels. The key factors that should be considered when selecting a suitable channel for Ganoderma Lucidum brand product are channel cost, the market, the type of product, profit potential and channel structure (Dinner et al., 2014). Specifically, the channel must be compatible with similar products which are critical in distribution success. In consideration of the stated factors, sales channel can be through direct, intensive, extensive and selective. When the direct channel is used, middlemen are not used to delivering and selling products to end consumers unlike selective where a few middlemen are selected because of their special facilities or abilities to enable proper product marketing. Furthermore, intensive have maximum exposure to the point of sales where many outlets are used, unlike exclusive where restricted number dealers are used (Haung et al., 2016).

Considering the type of product that requires to reach as many female customers as possible and has low cost and narrow product line, it will be suited for intensive channels. Furthermore, the use of selective channel may also enhance the profitability of the firm. Therefore, the company will use Direct, Selective and intensive channels in distributing its products as figure 1 below details.

Figure 1: employment of Direct, Selective, and Intensive Sales Channels (Self-Generated)

Specifically, the selective channel is appropriate because we will employ online selling techniques and may need distributors who have unique capabilities such as Amazon who can better market the online product due to their high brand awareness (Jobber et al., 2011). Therefore, the use of Amazon through selective channels will allow Yue-Sai Cosmetic to easily market its product in a well-known platform that has a high customer base. Furthermore, the direct channels will ensure that the company delivers products directly to its end uses thus increasing the chances of understanding the customer demands and making product adjustment as they have direct contact with consumers. Finally, the intensive will help maximise the sales specifically in physical outlets which will increase the high level of awareness of this product among the target consumers (Familmaleki et al., 2015). The use of intensive strategy will also help our brand products to reach consumers even in the rural and other remote areas which the company is not able to reach due to the high cost of establishing outlets in the areas in addition to increasing customer targeting for those in need of cosmetic products made of organic and natural ingredients.

7.0. Sales Techniques for the Sales Channel

The key sales technique which a company can use includes telesales and personal selling. Specifically, the use of telesales will be great importance in reducing the cost of sales, finding new direct customers and sales outlets to be used for the sales channels. For this reason, the telesales technique will mainly be employed in intensive and direct sales channels which require high levels of relationship between the business and consumers or business, seller and final consumers. Furthermore, the use of telesales will ensure that in these two channels, the customer service is improved to final customers and process information requests and incoming orders have fully been handled (Dinner et al., 2014). This will be assisted by the establishment of call centres in the UK where large incoming calls can be handled with the staff being fully trained for marketing success and reasons.

The second sales technique that will be used mainly in making the selective strategy successful is personal selling. Personal selling will be critical in identifying and reaching specific distributors such as Amazon who have great market knowledge and can be of great use in product marketing. The use of personal selling is important as it helps to build customer-to-seller relationships in addition to determining the customer needs therefore influencing the buyers to make a purchase based on communicated product benefits (Jobber et al., 2011).

8.0. Conclusion

The current report critically evaluated how Ganoderma lucidum product can successfully be introduced in the new UK market by introducing the product features and benefits, target client segment, the pricing strategy for each segment, the value proposition as well as sales channels with the sale techniques for each channel. The product features were found to be unique with the target client selected as B2C customers consisting of female consumers between the age of 18 and 35 years. Also, the best pricing strategy for the customer segment is skimming is that it will help measure the price perception of the category of the consumers due to the perception of the products being prestigious. Both PESTEL and competitive environment analysis showed that the product is viable and can be introduced in this new market. Specifically, the healthy economic environment, use of online technology and acceptance of organic products by female consumers makes our product acceptable in the UK.

Furthermore, the low supplier power, low substitute threat, and low entry threat is an advantage for Ganoderma lucidum products. In introducing the product, the sales promotion strategies used will include telesales and personal selling which are also sales techniques and publicity selling. In addition, the channels that we plan to use will be Direct, Selective and intensive channels due to

• Ganoderma Lucidum Product
• Specific Dealers
• Consumers
• Multiple Dealers
• Consumers
• Consumers