The Art Gallery is experiencing financial problems and the financial controller feels that something should be done to increase revenue flow. As a curator responsible for determining the price charged for the admissions, it is necessary to come up with an appropriate way of adjusting the price to increase the revenue. The first option is to increase the price of admission. However, this can only achieve the desired result if it is determined that the demand curve is inelastic. This would mean that the number of visitors will not change due to the price increase. The second option may be to lower the price. This strategy will be appropriate if the demand curve is elastic. In such cases, more visitors will be attracted to the firm due to the reduced price of admissions.
Introduction about the Topic
According to McEachern, the elasticity of demand is one of the most important factors that firms have to consider when setting the price for their products (45). The best way of increasing revenues for a firm is to increase the number of clients purchasing a given product. There are products whose price would determine whether or not people will be interested in buying them. However, some products would always be purchased irrespective of the changes in their prices. A firm must understand the elasticity of the products they offer before setting the desired price. In this case, the focus was to determine the right pricing strategy that would help increase the revenues at the Art Gallery.
Analysis of the case
This case presents a typical pricing problem that many firms always face in the market as they try to increase the revenues. At the Art Gallery, the focus is to increase revenues by coming up with the right pricing mechanism. The curator has to make a decision that will not worsen the current financial situation. If the curator increases the price, the revenue may increase in case the current number of visitors will remain unchanged.
However, the price increase may significantly reduce the number of visitors to an extent that the revenues may go down further (Ringel 56). If the curator chooses to go for the second alternative of lowering the price of admission, then the revenue to the firm will increase in case the number of visitors shall be considerably increased. However, if the decrease in price does not have a considerable impact on the number of visitors coming to the firm, then the revenue will be reduced. This is a delicate situation that requires comprehensive knowledge about the responsiveness of the demand for changes made on the product price. It means that thorough research may be necessary to review the past trends in pricing and the response from the customers.
Reviewing the records to determine the trend in visitors’ admissions based on changes in pricing will be the first step taken by the curator to solve this problem. After determining the responsiveness of demand to changes in product price based on past trends, the curator should interview the clients to determine if their purchasing patterns may be affected by changes in product pricing (Hirschey 32).
This interview will help confirm the findings from the records of the firm about the elasticity of demand for the product. Finally, it will be necessary to review the market price for similar products offered by other competitors in the same region. Significant changes in product price may trigger price wars in the market that may worsen the current financial problems of the firm. All three factors should be taken into consideration when deciding how to solve the problem.
Conclusion
This case study presents one of the common problems that many firms face when setting their product prices. Sometimes a firm may lower its product prices hoping that this would attract more customers. However, if the demand curve is inelastic, such moves may only harm the finances of a firm because it will not increase the number of customers. On the other hand, a firm may increase product prices hoping to increase revenues only to drive away most of its current customers. The right information is, therefore, critical before coming up with the right pricing strategy.
Ringel, Jeanne. The Elasticity of Demand for Health Care: A Review of the Literature and Its Application to the Military Health System. Santa Monica: RAND, 2011. Print.
Definition of strategic pricing, how it works and its data requirements
Strategic pricing is the act of setting a product price based on its value to a customer. The pricing can also be based on the forces of demand and supply rather than input cost. This approach proves that a customer’s choice is based on emotions and not logic. Customer’s perception and the market demand was considered by Washkewicz in adopting this strategy at Parker Hannifin.
In this strategy, marketers or salesmen usually set prices contrary to the traditional pricing where the operation and development teams are the only ones allowed to price items. For every increase in price a customer is willing to pay, a company receives higher profits. It also involves a lot of research on the consumption habit of customers before arriving to any decision. The five competitive forces are also analyzed and assessed in order to take care of future uncertainties.
The data required about the product includes what a consumer values most in a product and to what extent he values value it. The number of suppliers and their perception on the items they supply is also very important information. Knowledge on the market prices which involves conducting a research on the competitors’ prices also makes part of this data. This information can help a company increase its price or even know whether a new product has a chance in generating profits.
I.S roles in strategic pricing and individual roles in a strategic pricing system
The information system combines data from all sources including customer type and the volume of the product and applies the pricing policies to establish the set rules. Unlike in the traditional pricing where reports and spreadsheets were done manually, the system automates the entire process and distribution of information across all levels of organization is fast.
Once the information has been processed by the system, a company makes a choice on the most profitable product. With the help of more advanced sophisticated software, a system also analyzes more factors other than costs such as terms and conditions of sales, products and customers at large. The system also acts as a store where information are kept for future reference especially when comparing trends of consumer over time.
Since strategic pricing helps in making effective marketing decisions, it should be based on dialog with customers. The salesmen who set prices should engage the customers in discussions in order to capture their perception.
Once such information is obtained, the system administrators should provide that information to users who can be given access by the database administrator. Examining competitors is also an essential role in ensuring a successful strategic pricing system. By comparing with competitors, it is easy to identify areas which need improvements.
Impacts of strategic pricing on a business such as Parker Hannifin
Considering a customer’s perception in setting prices is in itself a marketing strategy for companies such as Parker Hannifin. Once a company has understood the rational choices that shape the consumption of customers, more people will identify with the company hence an increase in the customer base.
A company that adopts a strategic pricing system also easily maintains its customers. This creates an impact on the customer’s loyalty because their opinions are factored in pricing decisions hence they feel as though they are tied to the organization. All these factors results into increased sales hence high revenues and profits to the organization.
Application of strategic pricing
Software companies can as well adopt strategic pricing and benefit from it. Software companies cannot price on cost and usually have no idea of how many copies to sell. This means that there is minimum or no increase in cost of producing more units.
By conducting a research study and polling potential customers, such companies can easily distinguish between regular customers and those who use their services less frequently. Two different types of customers also lead to two different pricing levels for the same software. For instance a company can come up with a $20 per use fee and a $100 monthly subscription.
In real estate business, strategic pricing is used in listing price for a new home. Real estate market is dynamic and characterized by frequent changes. Strategic pricing can therefore be adopted to ensure that a customer’s needs are used to fix prices for new homes.
Some customers in this market environment are in need of a home and are always ready to pay even higher prices to acquire one. The same home, depending on the needs of an individual can therefore be sold at different prices. An increase in prices leads to more revenues hence such companies end up with a good profit margin.
How the value chain and competitive forces analysis relate to Parker Hannifin’s strategic pricing
Chains of activities performed by Parker Hannifin are set to handle forces that determine power in a competitive environment in order to fully implement the company’s strategic pricing. In supplier power for instance, the company considers the possibility of suppliers to drive up price because it sets its prices according to the market demands. A strategic pricing strategy also ensures perception of the suppliers is considered in identifying the uniqueness of a product and its strength in the market. The company has few suppliers making them so powerful.
The buyer power is another competitive force closely related to Parker Hannifin’s strategic planning as portrayed by Washkewicz. In order to survive the competition in the global economy, he hired a president of corporate strategic pricing to analyze what drives buyers to drop prices down. The president also tries to know the responsibility of the buyers toward the business and how they impact to the sales. Other functions include determining the cost of a buyer switching to other companies.
In order to resist the force of competitive rivalry, Washkewicz had to stop the company from holding back by using traditional pricing. The greater competition is characterized by heavy-cost cutting models, which is why Parker Hannifin considered thinking twice about raising its prices.
This company also set chains of activities such as consumer watch, target market research and sales analysis to ensure customers are given superior standard quality products to avoid threat of substitution. Due to the fact that substitution reduces an organization’s power, the company’s management system works to gather all the data necessary in making improvement of quality standards.
To this company, success does not necessarily mean building a market share but connecting with the target. There is a threat of new entry into this market which is why the company focuses on a customer driven strategy in order to increase sales and outdo the competitors. The company does this to avoid those who enter into the market from weakening their position.
Pricing strategy is an approach to pricing that every marketer is expected to use in relation to the company’s products. Pricing decisions should be critically approached because they play an important role on consumer demand and the competitiveness of a company’s product (Kotler and Armstrong, 2010, p. 32).
Prices should be effectively determined to maintain a good balance between profits and production. In most occasions, pricing strategy has been based on the costs of production (Kotler and Armstrong, 2010, p. 48). Apart from the costs of production, other external and internal factors should also be considered when coming up with a price.
As a matter of fact, pricing strategy plays a critical role in product positioning. In addition, it also affects other elements that make up a marketing mix. This means that there are various ways that can be used to determine the price of a given product.
Pricing can be either competition based, cost plus, loss leader, market oriented, price leadership, limit, target, absorption, marginal, predatory, price discrimination or psychological pricing (Mohan, 2005, p. 26). A unique thinking cap will therefore apply the best pricing strategy for sustainability. This is because it has a lot of products that need a different approach to pricing.
Penetration pricing strategy is mostly used to get a foothold in the market. This strategy is vital for companies that want to enter new markets with established players. In this case, prices are set at low levels to grab customers’ attention. In the long run, they will have more interest in the product.
This helps to drive up sales in the initial stages (Kotler and Armstrong, 2010, p. 47). Skimming pricing strategy sells products at very high prices with a high profit motive. High pricing is normally meant to offset the costs of research and development. This strategy is mostly used in electronic markets. As a matter of fact, it is only used for a limited duration of time before other tactics are employed (Mohan, 2005, p. 31).
Pricing tactics
Pricing tactics play an important role in product marketing. In this case, they have a direct impact on the competitiveness of a given product. Because companies face competition in the market, they have to keenly observe other products prices to come up with their own tactics (Shimizu, 2009, p. 62). In this case, prices can be the same with competitors’ products or they can be slightly lower. Product line pricing is mostly used when a company has more than one product in its line of products.
A unique thinking cap has a large product line like other competitors. The company has to compete with other established players like Aderans Co., Ltd. Aderans is the world’s largest manufacturer and distributor of caps and hair products. In addition, a unique thinking cap will also have to compete with Full lace wigs company ltd that specializes in wigs. These companies have different sets of prices to suit diverse segments of the market.
Prices range from $ 5 to $ 34 depending on the size and quality of the wig and cap. A unique thinking cap will adopt a unique pricing strategy in relation to different market segments. This is because caps and wigs are used by all age groups. For instance, the company’s prices will range from $ 4 to $ 32 as time goes by.
The company has settled on this pricing approach because the market is always changing as competitors adjust their strategies for sustainability. As a matter of fact, the company will be adjusting its prices depending on the prevailing market conditions.
Prices should be set after giving the products a different look. As a matter of fact, a product can be dependent on one or the entire product line. This therefore leads to the emergence of different price points (Kotler and Armstrong, 2010, p. 51). Product line pricing should be used throughout the products life cycle. In addition, there should be strong product differentiation for sustainability (Shimizu, 2009, p. 42). Value pricing offers products at reasonable and fair prices.
These prices are supposed to make sense to different consumers. This is because customers always want value for their money and this should be reflected in prices (Mohan, 2005, p. 29). Differential pricing can also be called discriminatory pricing. This is because a product ends up having different prices based on the type of customer or even the quantities that have been ordered. Pricing in this case can also be done based on the delivery time and other factors (Shimizu, 2009, p. 51).
Legal and ethical issues
There are various issues that are directly related to the pricing tactic that a given organization will choose to use. Ethical issues like social equity affect the pricing tactic in abroad way. This can be sliding versus fixed scale fees that will dictate the price. The impact and fairness of the price to the public should also be considered as this will affect consumer demand (Mohan, 2005, p. 36).
There might be instances where a company is forced to disclose the costs of production. This will ultimately affect the pricing tactics as there will be a lot of scrutiny on prices. Different countries have laws that guide predatory pricing and this affects a company’s tactics (Kotler and Armstrong, 2010, p. 54). For instance, there are various legal guidelines in predatory pricing for pharmaceutical products to protect consumers.
In other markets, there is a minimum pricing enforcement that affects the pricing tactics that a company might intend to use (Mohan, 2005, p. 43). This restricts product pricing within the set limits as violation might attract a lot of penalties (Shimizu, 2009, p. 73). Some countries have Competition acts and this can dictate pricing leaving a company without options in its pricing tactics. Pricing should be done within the law and expected societal ethics.
Marketing distribution channel
A marketing distribution channel defines the movement of products to the final consumer. Therefore, it is an important element of a given marketing mix (Mohan, 2005, p. 65). A good marketing and distribution channel ensures that products are readily available to the final consumers. As a matter of fact, it is a chain of intermediaries with each of them delivering the product down the chain until it reaches the final place (Kotler and Armstrong, 2010, p. 60).
This channel can involve wholesalers, distributors and retailers. Although each of them might have his own goals and targets to achieve, they all have a common objective of ensuring that goods reach the final end user (Shimizu, 2009, p. 32). Therefore, in coming up with a marketing distribution channel, the producer should ensure that the needs of the channel members and the end user are attended to.
All the chains in a marketing and distribution channel are bound together by the product and therefore end up forming strategic alliances for sustainability (Shimizu, 2009, p. 33). The needs of individual channel members can be different from the final consumer needs. In this case, channel members are more concerned with profit margins and incentives.
Distribution strategy
A distribution strategy outlines how a company will move products from the point of manufacture to final consumers (Kotler and Armstrong, 2010, p. 54). This should be done in a more effective and cost efficient manner. In a broad perspective, distribution strategy is part of a company’s marketing mix and determines the success of the product in the market (Shimizu, 2009, p. 69).
It fits the product and service because customers should get products at the right time and place. Through an effective distribution channel, goods will reach their target destination without any problem and thereby enhance the marketing mix (Kotler and Armstrong, 2010, p. 26).
Companies should develop effective distribution channels that will ensure that goods reach their target markets. A target market should be well identified and crafted in a company’s distribution channel for efficiency (Mohan, 2005, p. 23). Because of increased competition, a good distribution strategy should add value to the marketing mix.
After a company has identified its target market it should market itself well and ensure that consumers can access the product more cost effectively. This can only be achieved through an efficient distribution channel and strategy.
Every company has its own marketing objectives as far as its products are concerned (Kotler and Armstrong, 2010, p. 47). As a matter of fact, a company’s marketing objective is to ensure that products reach the market without any problem.
After creating awareness about a product, companies strive to ensure that the given product is physically present in the market (Shimizu, 2009, p. 35). This is only achieved through an effective distribution strategy. Wholesomely, a distribution strategy plays an important role in the achievement of a company’s marketing objectives.
Reference List
Kotler, P., & Armstrong, G. (2010). Principles of Marketing. Upper Saddle River: Prentice Hall.
Mohan, R, J. (2005). International Marketing. New Delhi: Oxford University Press.
Shimizu, K. (2009). Advertising Theory and Strategies. Japan: Souseisha Book Company.
The manufacturer is manufacturing antique-style furniture that is really differentiated in the sense that it is very unique in outlook. The features fitted on the desks are clear indication that they will in one way be special in the market. Considering that the price of a product to a large extent determines how the product fares, it is quite important that the price charged be appropriate. Before setting the price for a commodity, it is important to take into mind various factors that will normally be realized after a thorough marketing research.
Pricing strategies
The manager in this case is trying to gain a market lead by penetration pricing. This is the setting of a lower price to attract many sales in the market so as to enhance dominance in the market (Brown, pp25). The marketing manager in the given case may therefore be justified in setting a lower price in the market. Setting a lower price is a good strategy of capturing the market within a short time frame. It comes from the fact that the consumers will always seek to spend less and less for more and more.
The desks may therefore sell better in the market courtesy of the lower price that is charged. The low price charged will greatly determine the performance of the business in the long-run. From the managers’ scheme, it is inherent that the market for such desks is inundated with a lot of risks. Operating in a risky business environment requires the advantage of huge sales (Monroe, pp69). The strategy for low costs is therefore timely considering the need to cover all the risks.
However, the low-cost strategy may not be appropriate for the business in marketing the desks. The manager can capitalize on the fact that the desks are differentiated to capitalize on the price. Antique products normally are a treasure to many people. The price charged will also determine buyers of a particular product. A higher price is likely to drive away low-income buyers who will find the desks quite expensive. However the impact of the high price will not be grave considering that the high price will attract many high-income earners.
Rationale in fixing prices
Several studies have shown that many products normally disobey the law of demand (Monroe,pp63). It has been seen that for certain products, an increase in the price increases the demand for such products. This is common in products that are special in one way or another.
The desks, considering that they are antique in manner may evoke a sense of specialty in outlook, will automatically fall into that category. It would therefore be appropriate to sell the desks at a higher price than the conventional desks in the market. That will make many people seeking elegance and valor to buy the desks. For instance a price double the market rate will greatly attract many high income earners to buy the desks thereby boosting the revenue more than if the desks were priced at a lower price than the market rate.
Most of the other pricing strategies may not be appropriate in marketing these desks considering their nature. For instance predatory pricing may not be very appropriate since the firm is a new entrant in the whole market (Brown, pp27). It would therefore not be wise for the manager to use any other strategy in pricing of the products in the market.
The manager may consider either of the two alternatives outlined above. He can continue with the low price mechanism which may be a short term strategy since the competitors may respond by pricing their products even lower. Alternatively the desks can be slightly upgraded in quality so as to price them above the normal rate and gain competitive advantage.
Works Cited
Brown, Michael. Marketing In a Global Perpective. New York: Prentice Hall, 1999.
Monroe, Kent. Pricing Strategy Audit. Cambridge: Cambridge University Press, 2003.
I am writing to describe an idea about a new discount pricing strategy which can be applied in our deli and bakery as a way of increasing sales.
We sell food-products including gourmet jams and organic raw honey all ranging from $8.00 and $18.00. After a good consideration of our prices and products, an introduction of a discount strategy can boost our sales greatly. The discount pricing strategy is on the basis of the more you buy the more discount you are allowed.
Thus a 10 percent discount will be allowed for a receipt totaling to $ 30.00, 12 percent discount for a receipt with a total between $31.00 and $40.00, and a 15 percent discount for a receipt totaling to $41.00 and above (Jin Li, 1999).
The customer who will receive the highest discount in a week will be awarded with a free lunch. The total in the receipt to receive discount excludes amounts from gourmet jams and organic raw honey.
This will encourage more sales for the shop with its modern yet very classic, and prompt service. This will not imply increased sales for any specific products. This is because this discount pricing strategy accommodates all the shop’s products. It does not also discriminate customers on basis of their preferences.
Thus it will not push away customers as whatever food-products they buy can lead to a discount. The increasing discount rate will encourage customers to buy more from the shop as the more they buy the higher the discount (Watkins, and Media, 2011).
The business will compensate for displaced sales through increased prices of gourmet jams and organic raw honey. The prices of these products will be increased by 2 percent on the initial price. The sale of gourmet jams and organic raw honey will increase due to increased number of customers for food-products.
Thus with their increased prices and sales, higher profits will be realized from them. The shop will also get compensation from increased sales which will lead to economics of scale. The more sales which will be made will imply increased production which will imply decreasing marginal cost (Shah, et al. 2005). Thus the cost of producing a food-product will be relatively low.
This means that even with the shop offering discounts, it will still be making little profits from food-products that discount is allowed on. The shop will as get compensation on sales made on receipts with totals below $30.00. This is because there no discount allowed on these receipts.
The discount pricing strategy will stimulate sales in the shop. This is because it is on the basis of the more you buy the more discount you will be allowed (Waters, 2011). Thus customers will try to maximize their buying so that they are allowed higher discounts.
The discount pricing strategy will also encourage groups or families to buy food-products using one receipt so as they receive higher discount. This will mean increased number of customers in the shop. The discount pricing strategy will also lead to a competition between customers on who will have the highest allowed discount in a week.
This is because the one with the highest allowed discount in any given week will receive free lunch. This will thus imply more sales as customers try to win the lunch. This competition will also aid in keeping customers as well as attracting new ones (Watkins, and Media, 2011).
The discount pricing strategy does not lower prices of specific food –products thus does not create the impression of low quality products among customers. This implies that no customers will be going for products form competitors rather the shop will attract new customers. The discount pricing strategy will thus increase the sales in the shop.
References
Jin Li, F. (1999). How to Use Discount Pricing Strategies for Best Results. Web.
Shah, N. et al. (2005). Price Discount Strategies: A Review. Web.
Waters, S. (2011). Retail Pricing Strategies. Web.
Marketing is a critical component in business performance. JC Penny is one of the companies that have recognized the significance of effective pricing. The company recently developed a new pricing strategy (Anderson, 2012). The fundamental objective of this strategy is to increase the customer base. Apart from this, the company seeks to establish a strong and renowned brand.
Companies have undertaken transformative initiatives to enhance their competitiveness. Observably, most clients would be attracted towards goods that sell at lower and competitive prices. This paper analyzes the recent pricing strategy of JC Penny. Additionally, it examines the likelihood of success of the new pricing strategy.
Background of JC Penny and Its Department Store Industry
JC Penny is remains as a holding business organization. The company got its incorporation in 2002. Evidently, the firm operates as a major retailer. It has approximately 1102 departmental stores. These stores are present within 49 states (D’Innocenzio, 2012). The basic business processes involve the sale of merchandise and other critical services to different clients. These processes are procured through the departmental stores.
However, the company also applies online marketing to sell most of its products and services. The company deals in a wide range of goods. These are meant for beauty and cosmetic purposes. Some of these include apparels, different types of footwear, and accessories. Moreover, it is also evident that the company deals in jewelry products and other properties meant for interior design.
It is important to note that these diverse products are found within different departmental stores owned by the company. Nonetheless, the company has certain stores that act as a one-stop point for shopping to all customers. There are several kinds of distribution initiatives undertaken within the store facilities.
Generally, the company has made tremendous achievements. For instance, it obtained the global entitlements for the “Liz Claiborne family of trademarks” and associated intellectual property in 2008 (Anderson, 2012). In addition, the company has been able to acquire the U.S and Puerto Rico “rights for the Monet trademarks and related intellectual property.”
JC Penny’s Pricing Strategy
It is evident that the United States contains very sensitive customers. Pricing is a key factor in the manipulation of client behavior and consumption patterns. JC Penny undertook a bold step towards revamping its pricing strategy. This process involved the termination of coupons that were earlier issued by the company to the clients. This is despite the fact that most of its clients had gotten used to the coupon system of product promotion (D’Innocenzio, 2012).
According to most market analysts, this initiative was a great blunder on the side of JC Penny. Of course, the result would be a significant decline in the number of customer visits to the company stores. There are observable undertakings by the company to apply a strategic pricing mechanism to attract back its clients. For example, the manufacturer’s prices have been aligned to those of the JC Penny. This is a transformative undertaking to attract and expand the overall customer base.
The stores are also not left behind in these initiatives. There are efforts aimed at increasing the extent of geographic markets. The stores have begun regular vendor promotion practices. The technique involves collaborating with other vendors who have already placed the company’s products in the market for sale. The company wants to transform into a routine and low price departmental store. The change is forecasted to be vital for the company’s growth and development.
The recent “fair and square” pricing technique is expected to lure many customers throughout the year (Anderson, 2012). This undertaking seeks to transform the company from being specifically “a sale –on-promotion” entity. In the new system, customers are urged to attend or visit the stores persistently all year round. The operation through department stores offers unique opportunities to the consumers. This is because an individual has the capacity to buy expensive goods at acceptable rates of discount.
Whether the Pricing Strategy Will Work
Several reactions have emerged from the recent pricing strategy undertaken by JC Penny. It is clear that the strategy is not likely to work and succeed. There are several factors to be considered in this decision (Anderson, 2012). The strategy does not favor and takes into account the influential elements within the external environment. Notably, the radical change does not consider the feelings of the customers.
The customers were used to a particular pricing system. Therefore, this eminent change in pricing needed some time to be introduced. Economically, most people are keen to compare the prices of similar products. It is evident that even with a discount; most customers would not believe that the products are cheap. Such convictions might negatively affect the operation of this new pricing strategy. The price changes do not consider the fluctuations and interrelations of consumer behavior.
Flexibility and constant innovation are some of the critical steps in managing consumer behavior. A rigid pricing strategy would not be appropriate for the attraction of new consumers. The pricing strategy may be prone to potential threats from external competitors. There are many competitors within the clothing and design industry within the U.S (D’Innocenzio, 2012). It is necessary for all companies to adopt innovative technology and guided decision-making process.
In times of low economic conditions, most buyers remain reserved. This means that they do not rush to buying. Particularly, this refers to buying goods that have very high price tags. This is regardless of whether the good is to be bought through an agreeable discount. It is evident that several environmental factors interplay. Consequently, they have a significant role in influencing the purchasing power of customers.
The Pricing Strategy and the Company’s Merchandising Approach
It is evident that the pricing strategy to be adopted by the company complements its new promotion strategies. Foremost, the strategy allows for a wide room of informed choice by the customer. The proposed product promotion mechanism involves the use of different media sources.
In essence, this enables the advertisement and promotion of different products (Anderson, 2012). Therefore, several customers have diverse points from which they can choose their products. Specifically, it is important to use different promotion initiatives. Although there are obvious similarities, a considerable period would be appropriate to increase the sales volume.
Conclusion
Globalization and advanced technological applications have increased the level of competition. Most companies recognize the significance of effective pricing in marketing. Ideally, different pricing mechanisms may be applied to attract new customers. Notably, such strategies might be crucial in retaining the new clients. Expert advice and consultations are mandatory in the development of effective pricing strategies. Additionally, organizations must apply analytical tools while transforming their marketing strategies.
Topshop is a private limited entity which operates within the UK retail and fashion industry. The firm was established in 1964 and its headquarters are situated at London, UK. In its operation the firm deals with provision of a variety of apparels such as footwear, makeup, shoes and accessories (Yahoo Finance 2012).
To attain an optimal market position, Topshop has incorporated a unique strategy which entails product differentiation. The firm has achieved this by integrating the concept of exclusivity and uniqueness. Topshop achieves this by engaging in innovative and creative designing.
As a result, Topshop is able to develop fashion products which are sufficiently differentiated. Its differentiation effectiveness has enabled Topshop to attain an optimal market position in the fashion industry despite the intense competition from firms such as ZARA and H&M. Additionally, commitment to innovation and creativity has enabled Topshop to align itself with changes in the fashion industry (Yahoo Finance 2012).
In an effort to understand the external and internal environment with regard to Topshop, this paper details a comprehensive market audit of the firm. The audit is undertaken by incorporating macro and micro environment analysis models such as the PESTLE analysis, the Porters’ five forces and the SWOT analysis. An internal analysis of the firm is also conducted by evaluating the marketing mix strategies adopted by the firm.
Marketing mix
The success of a firm in marketing its products and services is dependent on the effectiveness with which it has incorporated its marketing strategies (Kotter & Schlesinger 2008).The marketing strategies have to take into account a number of variables such as the product, promotion, price and distribution.
Product strategy
Topshop has incorporated product diversification as its product strategy. The firm deals in product lines which are composed of a wide range of apparels and accessories in accordance with the customers’ needs. In its operation, Topshop is focused at ensuring that its products are of high quality, style and convenience. Some of the firm’s main product lines include mainline, boutique, and unique (Topshop 2012).
One of the main challenges in the apparels industry emanates from its dynamic nature. The rate of change in the industry is very high. To cope with this issue, Topshop is focused at attaining a high level of creativity and innovation. This has significantly contributed towards the firm’s capability in introducing new products to the market.
To ensure that the value of its products is not diluted by over-introduction of new products, Topship ensures that only a few pieces of a particular product line are introduced. For example, the firm may only introduce only 300 pieces of a new product which are stocked in specific flagship stores. This strategy is unique in that it contributes towards positioning its products being exclusive, prestigious and scarce (Topshop 2012).
Pricing strategy
In their purchasing process, consumers are very conscious of product prices. Firms use pricing strategy to communicate the value of their product. In its marketing process, Topshop has adopted premium pricing strategy. The strategy is aimed at communicating the high quality of the firm’s apparels and accessories.
Over the years, customers have associated Topshop’s products with value. This has played an important role in the firm’s effort to incorporate premium pricing. Topshop’s premium pricing strategy has succeeded as a result of the unique nature and high quality of its products.
Promotion strategy
Creating sufficient market awareness is one of Topshop’s goal marketing objectives. To achieve this, Topshop has adopted Integrated Marketing Communication (IMC) strategy. The strategy is constituted of various marketing communication techniques such as advertising, sales promotion and public relations.
In its advertising strategy, Topshop uses both emerging and traditional marketing communication mediums such as print media. For example, when introducing new products to the market, the firm advertises through mediums such as the local dailies in the UK.
Additionally, Topshop also engages in outdoor advertising for example by decorating its vans with its products and unique messages aimed at creating market awareness. Below is an example of some of the firms that the firm utilizes.
To create a strong brand relationship, Topshop contracts renowned celebrities to endorse its products. When opening its stores in New York, Topshop contracted Kate Moss, a renowned British model, Jennifer Lopez and Jay Z [renowned music artists] to attend the grand opening (Topshop 2012). Their attendance presented an opportunity for the firm to create market awareness. This is due to the fact that the media would sufficiently publicize the event hence creating brand awareness.
Topshop’s management team appreciates the role of information communication technologies in creating market awareness. Consequently, the firm has designed an official website through which it posts its products. Additionally, Topshop also promotes its products through emerging social communication networks such as Facebook. By using social networking sites, Topshop has successfully created a sufficient online community.
Distribution strategy
Upon developing products and services, it is paramount for firms to ensure that customers easily access them. Firms achieve this achieve this by incorporating both direct and indirect distribution methods. Topshop has established a number of outlets in the UK to enhance product accessibility.
The outlets are effectively positioned to improve customer accessibility. Topshop has also adopted online marketing. Customers can be able to purchase Topshop’s products online. Online distribution has been effective in ensuring that Topshop markets its products to a wide number of potential customers.
Market Environment Analysis
Macro-environment analysis
Firms do not operate in a vacuum but are affected by changes occurring in the macro-environment. Some of the macro-environment factors affecting firm’s operation include political, economic, technological, social, and legal factors
PESTLE analysis of the UK Apparels and accessories industry
Political environment
Over the past decades, the UK government has ensured a high level of political stability. This has played a critical role in promoting investment within the country. Most investors are increasingly considering investing in the UK.
The country’s political stability has enabled the UK to be a member of different trading blocs such as the European Union, the G-20 and the Organizational for Economic Co-operation Development. By being a member of such trading blocs, the UK government has been able to provide investors with an opportunity to market their products to a large number of customers. For example, firms such as Topshop can be able to export their products into the member states more cost effectively.
This is well illustrated by the fact that the UK has entered into free-trade agreements with other countries such as Norway, Liechtenstein and Switzerland. The economic integration between the UK and other countries presents an opportunity for Topshop to access raw materials member countries cost effectively.
Economic environment
The 2007/2008 global economic recession adversely affected most world economies as a result of the high rate of globalization that is currently being experienced (Gilligan and Hird 2008).
The UK was not shielded from the effects of the recession. Consequently, most economic sectors such as the apparels and accessories were adversely affected.
The UK has not fully recovered from the 2008 economic recession. The recession made most consumers to adjust their consumption behavior as a result of decline in their purchasing power. Decline in consumers’ purchasing power emanated from increment in the in the level of unemployment. Approximately 580,000 jobs were lost between 2008 and 2010 in the UK (Bell and Blanchflower 2010).
The recession has made consumers to increasingly focus on consumption of necessities rather than luxuries. During this period, a significant proportion of UK consumers considered fashion products such as apparels and other accessories as luxuries than necessities.
Currently, the firm’s operations will also be affected by the prevailing euro zone sovereign debt crisis. As a result of the crisis, the UK has experienced an increment in the rate of unemployment to 11.2% in 2012 (Cha 2012). It is estimated that the non-food retail sector in the UK will experience the lowest growth as a result of the recession. During 2012, the sector will decline with a margin of 0.5% (Verdict 2012).
The recession and the sovereign debt crisis have made consumers unable to purchase highly prices products such as fashion products (Verdict 2012). Therefore, there is a high probability of Topshop experiencing a decline in its sale revenue due to reduction in the consumer’s purchasing power. The economic recession has led to an increment in the degree of uncertainty amongst consumers. This is depicted by the rapid rate at which the consumers’ have reduced the rate of consumption (This Money 2012).
Social environment
Firms operations are affected by the prevailing social trends. Currently consumers have increasingly become conscious of fashion. This presents an opportunity for Topshop to exploit by designing high quality, unique and valuable fashion products. To align itself with the prevailing social trends with regard to fashion, Topshop undertakes extensive innovation and designing.
Technological environment
Topshop can benefit from the numerous innovations with regard to social networking technology. For example, the firm can exploit the social tools such as Facebook, Twitter, Tout and You Tube to interact with its customers. Through these social networking sites, the firm will be able to derive a sufficient volume of market information. Such information can be an important source of market intelligence for the firm.
Legal environment
Firstly, the government has eliminated all taxes on firms that venture in such zones. Additionally, the government issues a 5-year tax holiday to firms that invest in such zones. Incorporation of tax holidays has played a critical role in improving the attractiveness of the zones to investors. By investing in such economic zones, Topshop can be able to attain high profitability (Delloite 2011).
Competitive analysis: Porter’s five forces
Threat of entry
The UK high end retail market is characterized by a high threat of entry emanating from entry of large retail chains such as supermarkets. Supermarkets are increasingly diversifying their product range by including diverse apparels and accessories. This presents a major challenge for the firm (Key Note 2001).
The high rate of technological innovation especially the internet has made it possible for new entrants to venture the UK high end retail market. New entrants are using the internet to venture in the UK market by undertaking online marketing. To survive in an industry characterized by such a threat, it has become vital for Topshop to incorporate online marketing.
Threat of substitute
The large number of competitors in the UK fashion industry presents consumers with an opportunity to select from a wide range of products. During periods f economic recession consumers can easily access fashion products from supermarkets and other retail outlets.
Supplier bargaining power
The suppliers bargaining power is relatively low. Topshop mainly deals with its own branded apparels and accessories. Consequently, the firm is not mainly dependent on suppliers for its finished products. However, the firm outsources raw materials from different sources. For example, the firm accesses its supplies from different countries by importing. As a result of its global reputation, Topshop is able to negotiate for significant discounts.
Buyer bargaining power
The large number of industry players coupled with the fact that supermarkets are stocking diverse apparels has significantly increased the consumer’s bargaining power (Gilligan and Hird 2008). This arises from the fact that consumers can switch to other apparels and accessories product at a relatively low switching cost.
The high consumer bargaining power means that Topshop has to develop customer trust in order to sustain its sales growth. Additional, the firm has t ensure that it stocks high quality products. This will aid in developing the eve f customer loyalty. The figure below illustrates a summary the industry’s characteristic.
Degree of rivalry– The lucrative nature of the industry coupled with the large number of industry players has significantly increased the degree of rivalry in the UK fashion industry.
Micro-environment analysis: SWOT analysis of Topshop
The chart below illustrates Topshop’s, strengths, weaknesses, opportunities and threats.
Strengths
Brand image– The firm has managed to nurture its brand image.
Creativity and innovation- Top shop is cognizant of the fact that its customers are fashion sensitive.
International brand-The firms’ products have been endorsed by celebrities.
Customer experience– The high quality of the firm’s products coupled with the in-store atmosphere developed enables the firm to deliver unique customer experience.
Weaknesses
High cost of operation –The firm has a large human resource base and store space which increases cost of operation.
Management challenges- The large size of the store and the numerous product lines presents a major challenge for the firm.
Opportunities
New market segments – Topshop can increase its sales revenue by targeting new customer categories such as the youth.
Collaborating with celebrities– The firm can improve its brand image by collaborating with renowned celebrities.
International expansion– Topshop can increase the volume of its sales revenue through international expansion.
Brand expansion– Expanding its product line y focusing on men clothing will increase the firm’s sales revenue.
Threats
Competition- The firm faces a major challenge emanating from increased international competition especially from the top designers and fashion icons such as Next Limited, Wearhouse, River Island, Unite Benton, ZARA and H& M.
Economic recession- Occurrence of a recession may affect the firm’s profitability due to decline in volume of sales.
Conclusion
From the above analysis, it is evident that Topshop has been very effective in its operation. Its success has arisen from adherence to quality, innovation, creativity and maintenance of product value. As a result, the firm has been able to attain a high level of customer satisfaction. Topshop has been successful in marketing its apparels and accessories products through formulation and implementation of effective marketing strategies.
As a result, the firm has been effective in positioning itself in the market. Despite this, the firm faces numerous challenges emanating from the external environment. To effectively position itself in the market, it is paramount for the firm to continuously conduct a comprehensive market audit. The audit will aid in formulation of effective marketing strategies thus enhancing its competitiveness.
Reference List
Bell, D. & Blanchflower, D. 2010, UK unemployment in the great recession. Web.
Cha, A. 2012, European financial crisis has ripple effect on US businesses. Web.
Delloitte: Taxation and investment in United Kingdom 2011. Web.
Grundy, T. 2006, ‘Rethinking and re-inventing Michael Porter’s five forces model’, Strategic Change, vol. 15, pp. 213-229.
Gilligan, C. & Hird, M. 2008, International marketing: strategy and management, Taylor and Francis, New York.
The company will benefit a lot by importing suits from Korea. The Korean produced tuxedos will cost Classy $ 137.50 each including the licensing fee. The license from Yves Saint Laurent offers Classy a chance to strengthen its performance within the market. The quality of suits produced in Korea, together with their favorable prices, will make Classy competitive in the local market.
Stephen Hecht and his executives need to find a workable solution for the challenges Classy’s products are likely to face in the market (Case Study, 2012, p. 844). The biggest challenge the product will face is the price structure and marketing model to be used. The price strategy and product distribution will have an impact on how the products perform.
There are 2000 tuxedos that are supposed to be sold by the end of the year. The company is looking for ways through which it can make this objective possible. The executives are not sure if they should sell the products within the shortest time possible, and if it will benefit the company.
The company has incurred a lot of costs in acquiring the new stock which is likely to put some of its key projects on hold. This is challenging because since its founding, the company has never sold more than 500 tuxedos in one year. Classy needs to come up with better solutions to the problems that its products are likely to face in the market (Case Study, 2012, p. 845). The quantity of the merchandise and the price strategy to be used to sell it will have an impact on how it performs in the market.
Classy’s executives are not sure which customer segments the product is going to appeal to. A majority of its clients are aged 35 and above. It is challenging because, the firm needs to appeal to all consumers for its products to become competitive in the market. The pricing strategy adopted needs to reflect the unique attributes of the local market.
The formal wear product the company intends to sell needs to maintain a good image for it to appeal to customers’ preferences. If the product is sold at the market price of $ 300-$350, it is likely to compete effectively with other similar products sold by the company’s competitors (Case Study, 2012, p. 845). However, other firms have established brands with loyal customers who are not likely to shift their loyalty to the new product.
Since Classy’s product is still new in the market, it may have difficulties in establishing itself effectively. If the firm chooses to price its products at $400, it would send a message that the company targets high income market segments. The company’s products would be priced at $50 higher than similar products sold at regular men’s wear stores.
A $400 price would make some consumers not to purchase the tuxedos as they will feel that the product is very expensive for them. Therefore, this approach may not work for the product since, it is not well known in the market (Case Study, 2012, p. 845). A $400 price would limit the level of tuxedo sales the company would make in the market within the financial year.
If the firm decides to price its products cheaply, they would be able to attract many customers. Pricing the products at a price of $299 and below would help Classy to sell more of its products in the market. However, the brand quality of the tuxedos would suffer. This approach would not be suitable for the company.
It has a license agreement with Yves Saint Laurent to sell its products in Canada. If the firm chooses to sell its products at a price lower than the market average, customers in the high income market segments will be less interested in purchasing it. The tuxedos would be sold at a faster speed and this would clear the stock the company has within a short period of time (Case Study, 2012, p. 845). The market is highly differentiated and as such, some customers evaluate the strength of a product in terms of its quality and not its price.
The mode to be used to deliver the product to the market is a big challenge for the company. The company’s strategy of strengthening its retail operations may not be effective because, only 10% of its sales are obtained from retail operations. The company will have to spend a lot of money to set up new retail operations in different areas. If the company chooses to sell the products through retail outlets, their prices will be unattractive to customers.
Retail prices would be $299 and above which would make the company’s products less competitive in the market compared to other similar products. If the same product was to be sold to wholesalers, its price would be $150 and above (Case Study, 2012, p. 846). The company would not be able to attract buyers of its products to retail outlets that stock them, because of price disparities.
Classy obtains lower revenues from retail operations compared to wholesale operations. The firm’s distribution model is not effective and needs to be changed. The company’s dependence on wholesale and retail channels is will have a negative consequence on the sales of its products. The company has not positioned its products to reflect the prevailing situation in the market. The tuxedo suits that are going to be sold should be seen as exclusive.
The company has not identified the specific wholesale and retail locations where sales of tuxedos would bring in high revenues (Case Study, 2012, p. 846). The company cannot make clear revenue projections without understanding the needs and preferences of customers in different market locations.
The size of the market is proving to be a problem. Classy cannot understand the number of men in the market willing to purchase tuxedos. The price strategy used by the firm will have an impact on the number of customers who purchase and wear tuxedos. The company may be tempted to price its products cheaply, so as to attract more men to purchase them.
If the company adopts a low price, customers will not appreciate the good attributes of its product (Case Study, 2012, p. 846). The company does not have a clear strategy on how it should position its product in the market. Classy’s executives lack market insight on how the tuxedos will be sold.
The company needs to review its pricing strategy for its products to perform positively in the market. If the company sells its tuxedos at $400, customers will be convinced that the product is better in quality, compared to other similar products. This price strategy would strengthen the image of Classy’s tuxedos in the market.
The company would not be worried that its stock will run out quickly (Dunne & Lusch, 2007, p. 79). This would make the brand appeal to the middle and higher income market segments, which are not easily swayed by low priced goods. Classy would recover the expenses it has incurred in importing the tuxedos.
A low price would enable the company to sell its products quickly. This would appeal to all segments of the markets, especially the low income market segment, which is price sensitive. Classy’s image would be dented if it adopts this strategy. The company would be in a position to sell large volumes of its stock quickly.
However, it has a licence to sell Yves Saint Laurent products, whose strong brand appeal make them competitive in the market. Classy cannot adopt a low price strategy because its products are associated with a strong clothing label (Dunne & Lusch, 2007, p. 81). The company needs to compete on the basis of quality and not price. This will make its products to have a stronger reputation in the local market.
The company needs to partner with reputable department stores which have clothing sections that cater for middle and high income market segments. Classy needs to agree with these stores to sell some of its tuxedos from there. This will reduce the company’s dependence on wholesale and retail distribution channels.
Department stores located in posh locations offer the firm a better opportunity to make its products competitive (Gould, 2012, p. 97). The firm would be able to save on costs that come with retail expansion; to focus on building positive relationships with its clients. This approach would make Classy’s products stronger in the local market.
Classy needs to focus on effective channels through which it can sell its products. The company has 38 retail outlets all over the country. The firm needs to carry out a feasibility study to understand the competitiveness of each retail store.
Company executives should assess the performance of each retail unit. Retail units with a history of consistent positive performance should be used to sell the tuxedos (Gould, 2012, p. 103). This approach would make Classy narrow down its market outlook to areas that are likely to bring in high revenues. This would make it easy for Classy to build and sustain strong consumer relationships with clients within its target markets.
Classy should carry out a market survey to determine the number of men who are likely to buy tuxedos. This would give the firm appropriate facts and statistics that reveal the nature of its local target markets (Gould, 2012, p. 109).
The facts obtained from the survey would influence the pricing strategy and marketing approach to be used in selling its products. Classy will be able to know the needs of its clients and how it can satisfy them. A market survey would help Classy understand how it can position itself in the market effectively. This would make its operations more efficient.
The company needs to consider all these recommendations before coming up with a market strategy. This will help the company to plan on how it wants to operate in the local market.
The introduction of the iPad to the market came at the backdrop of a successful launch of the iPhone. The iPhone was barely out of the introductory stage when the iPad 1 was launched. The second generation iPad has recently been launched. Sometimes it is hard to define the stage in product life cycle apple products are.
This is because their entry is characterized by huge success and massive reception by consumers. Experts note that it is possible to skip some stages in the product life cycle (Armstrong and Kotler, 2011). I would say that is what happened with iPad.
All characteristics surrounding the second generation iPad confirm the fact that it is at the introductory stage, apart from the massive consumer use it is already enjoying in the market. I would say it is in the growth stage. The marketing pricing strategies that Apple Inc should employ are not clear.
The market penetration pricing strategy, according to me is not a good option. This is because the market reception is already quite positive. Therefore, riding on this euphoria that has been generated by all the talk about the iPad, the company will recoup its investment quite fast.
The second generation iPad was launched in 25 other countries (apart from USA where it was originally launched) just last month (Apple Inc., 2011). Initial indications showed that those markets were waiting for the product to arrive. This means that no matter the price, consumers will focus on the value addition of iPad 1 (Satariano, 2011).
The other reason the company should not adopt the market penetration pricing strategy is that competition is almost nil. The most formidable competitor Motorola xoom is still in competition with iPad 1.
The CEO of Apple Inc Steve Jobs noted during the launch that competitors are struggling to catch up with the first generation iPad while the second generation is already launched. This underscores the variability that is there in market share with the closest competitor (Armstrong and Kotler, 2011).
The second generation iPad is an improvement to the iPad 1. This is terms of camera quality, sexiness, Wi Fi capabilities and horse power capabilities (Topolsky, 2011). These features are also way competitive compared to Motorola xoom. This means that majority of consumers will see xoom as just an imitation of the iPad. They will go original (Johnston, 2011).
Another reason is the fact that apple has had other successful launches before. The iPhone which entered the market in early 2007 received so much reception in the market. There was actually no competition for some time. Banking on that success, the company should simply introduce the product in the market at a high price. The target market can also be a determiner in overall pricing.
In this case it is evident that iPad is not meant for lower end market. It is for the high end market. This means that its price should be high. The company should listen to the consumers for improvements and value addition propositions (Armstrong and Kotler, 2011).
It is evident that my proposal is that Apple should employ market skimming pricing to introduce iPad. Because of the favorable past quality and successes of its products, it will easily recoup its costs and make profits. Afterwards it should shift to market penetration pricing strategies. This is what the company did when launching the iPhone in 2007. Focus, in the short run, should be awareness and value addition (Armstrong and Kotler, 2011).
Reference List
Apple Inc. (2011). Ipad 2 Arrives In 25 More Countries This Friday. Web.
Armstrong, G. & Kotler, P. (2011). Marketing: An Introduction. New York, USA: Pearson Prentice Hall.
Snapple is an American soft drink company that ensures it has an effective product strategy: the strategy ensures that the company comes up with products that are competitive and responsive to the needs of the customers.
The company makes brands of different flavors depending with the target market; some of the products include juice of different flavors, tea drinks, water, diet drinks, and fresh squeeze among others. The driving force to buying a certain product is the target market that the products are aimed at selling to.
To come up with the products, the company engages in massive products and market research (Snapple Official Website).
The main change that should be made in the company’s products is the packaging that they use: most of the products have been packed on plastic material that destroys the environment; with the decomposition rate of plastics, when they have been deposited, they pollute the environment.
The company should look for paper packaging material (when using paper concentration should be on recycled paper material), they will be less polluting.
Snapple can be said to have a strong brand name across the markets it operates in, despite the competition in the soft drinks company, the company has been able to command an increasing market share and in the future its markets are likely to improve even further. When faced with an issue that can challenge the growth of its brand, the company is quick to react and change the ill move.
The company can increase its markets further if it can have some low alcoholic products alongside the main line. The strategy will be a move of brand extension strategy: to get into the market, the company should make use of the strength of the current brand to persuade people adopt and embrace the new products (Monroe 63).
Pricing strategy
The company uses a premium pricing model; the products can be said to be slightly higher than the average price of commodities in the industry. The reason why they have adopted the method is because of the strength of the brand. It has high quality products that can command a higher market than the others; when using the method, the company targets the working class and the high class members of the society.
Premium pricing model is a strategic pricing model where the company rests on it strength in the market as well as the quality it offers. Since 1972, when the country was incorporated, they have developed unique products designs and they can blend sweet flavors to increase the market.
When pricing the products, the company looks into the costs incurred, the profit margin as well as the costs sold by other companies in the same industry. After noting the average price in the market, the company’s marketing team then adds a margin that represents the premium as required by premium pricing strategy. The pricing method gives a higher return to the company but makes the products not affordable by the less fortunate in the society.
The company should looks into the pricing approach that it is using; the current approach is locking the less fortunate in the society to afford the products. It should start taking use of economies of scale that it currently enjoys; with the current rate of economies of scale, the company can have some quality flavored products at a lower price (Kotler and Armstrong 263).
Works Cited
Kotler, Philip, and Armstrong Gary. Principles of Marketing. New Jersey: Pearson Prentice Hall, 2010. Print.