To develop a pricing strategy for Nor’easter’s new season in Springfield, Larry Buckingham, the marketing director, relied on existing data from the League Sports Association and his own survey.
The Association’s 2005 research examined the entire league market, making the data unreliable for drawing conclusions about the city’s minor league clientele. In light of this, Larry decided to conduct a survey to generate data for a better analysis of the market.
In designing the survey, he consulted other minor league managers to learn their revenue generation models. Such information would help him formulate relevant questions for the survey. A preliminary test of the survey was conducted to evaluate how well the respondents understood the questions.
Larry acquired the contacts of the residents from city’s national census and four firms. He mailed 10,000 survey questionnaires to a sample of the residents of which 625 responded. Since the survey focused on the minor league, Larry believed that its findings were representative of the market and thus, reliable.
The research survey yielded multiple key findings. First, 21% of the fans attending Nor’easter’s match would opt for a one-game payment model while 11% will prefer a five-game package. Secondly, 31% of the fans would pay $10 compared to 27% and 22% who would pay $12 and $14, respectively, for single tickets.
From these findings, Larry learnt that a large majority (highest percentage) of fans could pay more than $10 to watch one game, which implied that he could set a price higher than $10 for single tickets. For the 5-game tickets, respondents indicated that they could purchase them at a maximum price of $12.
Additionally, grandstand seats were preferred over bleacher ones, with a significant proportion (48%) willing to give an extra 10% to use them. The survey also revealed that 66% of the residents lived with young children.
In designing an effective pricing policy for the team, Larry must consider a number of factors. First, Nor’easter should sell a minimum of 300 full-season tickets to avoid exiting the Springfield market as the Falcons did. As the survey results indicated, most fans do not like purchasing full-season tickets.
Another consideration relates to the median income of the locals, which stands at $31,000. This lower income makes them thrift spenders. However, the city is growing as more firms and financial institutions come in. Moreover, Nor’easter should consider ads and concessions as potential revenue sources.
Larry should also consider the owner’s requirement that the team breaks even within a year.
In view of these considerations, an ideal ticket-pricing plan should favor grandstand over bleacher seats because 48% of those interviewed reported that they could pay an extra 10% for them.
In addition, as most residents could purchase 5-game tickets at a price range of $10 and $12, Larry should price them at $12 for the favorite seats and $10 for the less preferred ones. Considering the consumer interest in grandstand seats, this dual approach will enable Nor’easter to make a profit by targeting both client groups.
Similarly, the organization should price full-season tickets and 20-game tickets at $6 and $10, respectively, as more people can pay $8-$10 for the former and $4-$8 for the latter. For the single tickets, a price of $12 and $14 for the bleacher and grandstand areas would be reasonable.
Given the pricing plan stated above, the likelihood of the team breaking even within a year from the ticket revenues alone is slim. If it can sell above 75% of the tickets of each match, it may break even within that period. However, if ticket sales in each match are less than 75%, Nor’easter will need concession revenue to reach the break-even point.
One approach Nor’easter can use to break even within a short duration is promoting the games to families. This segment spends more and visits sporting events regularly. Larry can also form partnerships with local enterprises to sell discounted group tickets to their staff.
Globalisation has facilitated trade among countries. It has made the world a global village where goods made in one country can get access to another, off-course after meeting logistics set by the exporting and importing countries. Selling in international market has advantages to the producers of a certain product with the most notable benefit as large access to market. Japan and United States have good trade relation.
Goods from Japan can be sold in United States of America without major trade barriers other than duties and import quotas. When venturing in the market, the marketing team, product and development team and the general management must decide on appropriate channelling and pricing strategy. These strategies will assist the products enter Unites States market and remain competitive thereafter.
There are different rationales that are used when determining the channelling and pricing strategies to use (Grant, 2008). This paper looks into channelling and pricing strategies to be adopted in domestic market and United States of America market on goods made in Japan. It will also justify the choice of United States as a secondary market.
Justification for choice of United States as the second market area
United States has the world largest economy. The country has embarked on massive international trade and places limited trade barriers and restrictions to international trade. In the efforts of ensuring that there is fair competition among all players, both local and international, the country has removed/given subsidies to local producers.
It removes subsidies when local products are likely to be produced at a lower price than imported goods. On the other hand, it may use taxes on imported goods to create equality in imports and locally produced goods. Secondly, the country gives subsidies when local products are produced at a higher price than imports. This offers a growth to free trade.
United States is a world market destination; this will assist the company is targeting customers who are not only Americans residents but from other countries.
To facilitate such a trade, United states have a re-import re-export mechanisms which means that if imported goods are to be exported from United States at their raw state, then taxes which were paid for the goods is refundable. The only thing that is not refunded is intention to import declaration fee (IDF) and handling charges. This move will assist in targeting traders from other parts of the globe.
Internal market is another factor that has made the choice of United States. The population of United States is increasing by day. According to United States bureau of census, the population of the county as per 2009 census stood at 310,600,915. This number is increasing with at least one birth every 7 seconds and in every 37 seconds on average the country record’s an immigrant.
The net effect is an increase in one person for every 12 seconds. The population on the other hand is composed of people from different parts of the world. This move will help in reducing negative perception of goods made from other countries.
This is facilitated further by good relation that exists between the United States and Japan. The culture of the people facilitates trade with other countries; the most important thing the people look for is quality and price of the product; they are less concerned about the country of origin (US. POPClock Projection, 2010).
United States has a well developed transport and communications network. This will facilitate transport of goods from Japan to United States where there are options of using water transport of using air. Japanese national carrier fly’s to United States at-least three times in a day. This will facilitate trade among them.
Getting a licence for an international business is easy in united states; the country also has a special taxation policy aimed at encouraging foreign direct investment. Japan and United States have a double taxation policy which ensures that income taxed in united States will be an allowable amount in Japan. This will reduce chances of double taxation of the company’s income (Alexander, 2010).
Channelling strategies
Channelling refers to the method used to ensure that good move from the manufacturer to the market where the consumers they can get them. The way goods are distributed and places where they are found are elements of channelling.
The methods adopted for channelling determines the effectiveness of a certain venture. In international trade, getting into the market involves massive campaigns and persuasion to customers to accept a company’s products.
In the case of United States, the channel strategy that will be adopted is a combination of four strategies; they are competition strategy, value strategy, direct strategy and third party strategy.
Direct strategy
The company will establish a permanent business in the country which will be receiving goods from Japan and distributing then in the country. They will be whole-selling and also retailing. These establishments will be stationed at different strategic points. They will not be manufacturing but their task will be distributing.
Third party strategy
Third parties like super markets will be target market for whole sale goods. They will either be encouraged to buy from the company’s branch in United States or import directly from Japan. This will ensure that a larger number of customers will get access to the products.
Competition strategy
After venturing in the market, an S.W.O.T. analysis will be conducted for the company to ensure that it has understood the strengths, weaknesses, opportunities and threats that it has. Good produced by competitors will be analysed and a gap that they don’t fulfil established.
This is the gap that the company with its products will aim at filling. Continuous product improvement will be made to ensure that the company is ahead of its competitors in product differentiation and quality.
Value strategy
To remain competitive in the highly competitive United States market, the company will ensure a continued product improvement. Internal processes will be improved to ensure that goods of high quality are produced from the company. This will make the company competitive, increase customer satisfaction and the end results will be loyal customers.
To help in entering the market and increasing sales, there will be a number of marketing campaigns in the country. Advertising and marketing costs will be borne by the company. Research and development will be the order of the day to ensure that the needs of customers are recognised and addressed appropriately (Kotler & Kevin, 2007).
Pricing strategy
The price of a commodity is a product of production cost and profit margin. For a company to break even, total cost of production must equal total revenue. A pricing strategy approaches prices in two perspective; company’s perspective and consumer perspective.
The company must get some profit from the sale and on the other hand the customer should not be injured by the price. When the price is too low, the company losses and when it’s too high the consumer suffers. There should be a middle ground.
To determine the price of good in United States, the company will adopt a minimum price and segmentation price strategies.
Minimum price strategy
This is whereby the minimum cost that can be sold is determined. This equals to the total cost incurred in delivering the product to the final consumer. In this case, the company will incur manufacturing cost, transport costs, customs costs and operating expenses.
These costs will be distributed among individual products. Decision on how advertising and marketing costs will be shared will be analysed to ensure that both domestic and internationally sold goods get a similar portion.
After determining the cost for both local and international market, a profit margin is then added to the cost to get the selling price. The amount of profit will be determined among others by the price that other products are sold. The margin should not be too high that the price of the product is higher than that of competitors (Kotler & Kevin, 2006).
Market segmentation strategy
For pricing purposes, the market will be divided into three segments; low earning segment, middle class segment and high class segment. After getting the segments, then strategies to price in the segments are then devised. This approach utilizes characteristic of these groups in regards to price.
Low class segment
These are people who are less fortunate in the society. To sell to them, the company must aim at selling their products lower than those of the competitions. This class is more sensitive to price changes. To sell low, products should be packed in the lowest quantities possible.
They should also be available at low class estates. Another method that can be used to sell at lower cost is passing the packaging cost to the retailer. Here the company will produce goods in bulks and supply them to the retailer who will subdivide them to his customers according to various quantities they require.
Middle class
This class are well informed about the costs of competitor’s goods. They are less likely to buy goods which they consider highly priced, alternatively, they will down upon goods whose prices are very low compared to the prevailing market price. The approach to this class is to ensure that the price changed is more or less the same with the price charged by competitors.
High class
This class of people are more concerned with quality and product differentiation. They have a perception that goods that are retailing at high prices are of good quality. Prices here can be set slightly high to benefit from this believe, however the company should account for the high price in terms of quality that they offer.
Distribution of goods should be to places that these groups are likely to be found like shopping malls and designer shops. Packaging should be attractive since this class is attracted by the first impression (Newsom, VanSlyke & Kruckeberg, 2004).
Conclusion
With globalisation, selling of goods in the international market is facilitated. United States is the world largest company whose government has put measures to facilitate international trade. Channelling of products both in local and international market is of great importance to a company since it determines the success of such products. These strategies include competition strategy, value strategy, direct strategy and third party strategy.
The price that a product is sold determined the market of the products; market segmentation assists in determining the price to charge for a particular item, it should however cover manufacturing and operational cost and give the company some profit.
References
Alexander, R. (2010). Compost Sales Tips To Meet Current Market Conditions. BioCycle, 51(6), 21. Retrieved from MasterFILE Premier database.
Grant, J. (2008). The Green Marketing Manifesto, 1e. New York: John Wiley & Sons, Inc.ISBN: 9780470723241
Kotler, P. And Kevin K.(2007). A Framework for Marketing Management, 3e. New Jersey: Prentice Hall, Inc. A Pearson Education Company. ISBN: 9780131452589
Kotler, P. and Kevin K. (2006). Marketing Management, 12e. New Jersey: Prentice-Hall, Inc. A Pearson Education Company. ISBN: 0131457578
Newsom,D. , VanSlyke, J., Kruckeberg, D. (2004). This is PR: The Realities of Public Relations. Thomson Learning. ISBN: 0534562639
Introduction: Case Presentation and Thesis Statement
Price capacity upgrades for Clearwater Technologies’ QTX server is the main discussion of the company’s top officers in their meeting.
The finance department wises to increase revenue thus suggesting having prices as high as they could while for the sales side, prices should be fair enough to produce volume and for the management team prices should stay within the margin model. The Vice President of Marketing suggested that the 3 departments should consider having prices meet the following factors, namely:
The prices of the capacity upgrades should not be lower than the original or current market price of the brand new 30 seat QTX server.
Considering that not all customers will come back and purchase upgrades, the team should push to sell the 30 seat QTX server the first time around.
The company should capitalize on customers’ commitments but should not rip them off thus it is important to determine the pricing limits.
This paper aims to present strategies for Clearwater Technologies’ dilemma in pricing capacity upgrades from 10 to 20 seats, 10 to 30 seats, and 20 to 30 seats given that they conform to the Vice President of Marketing’s advice to the 3 officers.
Value Optimized Pricing Strategy
Capitalizing on customer’s commitment, the company should adopt value optimized pricing strategy in producing price computation for the QTX capacity upgrade. Basing on the benefits and values Clearwater Technologies’ QTX servers may offer and provide its customers, the prices will be focused on these factors.
“Value-based pricing depends on the strength of the benefits a business can offer to customers” (Price your product or service). Thus, before pricing products and services, the company’s competitive advantage over its competitors must have been clearly-defined in order for it to charge its customers accordingly with regards to the benefits and value of its products and services.
Though this strategy may generate income, the risk in implementing such may result to the alienation of potential customers who are driven by market pricing and this strategy may even invite new competitors in the industry for the company. In implementing value optimized pricing strategy, the company must understand that the goal is to better align prices directly with the value offered to customers.
Prices can be customized for clients in order to reflect a given value delivered. Such strategy is intended to make Clearwater Technologies become more competitive in the industry at the same time earn more profits and maximize value for given clients. This strategy’s crucial success is dependent on the company’s understanding of customer’s measurement of value, willingness to pay, and attributes to products and services.
Cost-Plus Pricing Strategy
In order to satisfy the finance department’s request in increasing revenues, cost-plus pricing strategy must be considered in calculating the needed price for the upgrades since such method is concerned with maximizing the company’s profits.
Also known as markup pricing strategy, this approach determines prices that include the cost of production added with a part of that cost as mark up, thus providing enough profit margin to the company to earn its target rate of return (Hutt & Speh 2009).
In this strategy, prices of production and services using direct and indirect costs or fixed costs are determined even if they are not related to the manufacturing and sales of the products and services. Cost-plus pricing is a simple strategy where cost of production is calculated and markup over costs is determined.
When both variables are given pricing becomes easy because these 2 will be added and thus prices are already produced. Wide usage of such method can be attributed to the simplicity of its structure. Full cost is calculated in this strategy and thus prices are based on factual and precise grounds making prices more defensible in its establishment (Maheshwari, 2005).
Limit Pricing Strategy
In order to sustain the monopolistic control of Clearwater Technologies in catering small and medium sector businesses, a limit pricing strategy must be adopted. The limit price should be implemented in the 30 seat QTX server products, which would be desirable for customer purchase.
Clearwater Technologies would adjust the prices of initially purchased 30 seat QTX servers, slightly lower than the average cost, making it a limit price to avoid having competitors from entering the market since it would be non-profitable for them (Milgrom & Roberts 1982).
Loss Leader Pricing Strategy
Since the goal of the company is to make customers purchase the 30 seat QTX server on the initial transaction, thus the 30 seat server must be considered a leader in strategizing prices (Van den Poel, De Schamphelaere & Wets 2004). Loss leader pricing strategy or leader products are primarily pushed products that cost lower or below production costs to generate other profitable sales (Van den Poel, Vindevogel & Wets 2005).
In this case, 30 seat servers are cost low so that the company will capture a higher market share and maintain market monopoly. Loss leader strategy is used to draw more customers to buy not only the leader product but also other goods and services provided by the vendor.
When customers buy other products the same time as buying the company’s leader products, profits made from the purchase of other items will cover the loss of the price drop from that of the leader product.
The concept illustrated in the loss lead pricing strategy is that lowering down a price of a certain product (leader), offering it at a reduced price, is intended to lead to the sale of other regular priced items, sometimes also priced higher than their actual market value, which will generate more profit for the vendor since buyers tend to buy in greater numbers if items are on sale.
Leader products are often priced below its profit margin and sometimes below cost.
Penetration Pricing Strategy
The initial goal of Clearwater Technologies is to gain market share by making customers purchase the 30 seat QTX server on their first transaction with the company. The main idea here is that the company gains market share, capturing the loyalties of customers and later on capitalizing on such commitments.
Penetration pricing strategy is ideal in this case since prices are set at a lower cost in order to attract customers and gain market share. After achieving such objectives prices will be raised back to its original price (Monroe 2003).
The 30 seat QTX server should be priced low compared to its other competitors and other lesser seated products in its category (10 and 20 seat) so that Clearwater Technologies will capture a huge amount of market share and fulfil the senior officer’s objective of getting customers to purchase the complete product on the first transactions which will later be useful for the company since it will be capitalizing on its clients’ commitments.
Premium Pricing Strategy
Since the price for the 30 seat QTX server is low, customers may have the perception that Clearwater Technologies is not a premium brand and product quality and services is not of good standard. In order to position the brand of the company premium pricing should be strategized by the company.
Premium pricing strategy is the exercise of making prices of products and services high so that customers or probable buyers’ perception of the brand would be favourable. This strategy exploits buyers’ perception that expensive items are of exceptional quality (Gittings 2002)
The 30 seat QTX server is already priced low, thus prices of capacity upgrades must be made artificially high in order for customers to see the advantages of buying the 30 seat server initially and satisfying their notion that the brand of Clearwater Technologies’ is of premium quality and standard.
Contribution Margin-based Pricing Strategy
The management team’s concern with regards to keeping prices within the margin model can be satisfied with the contribution margin-based pricing strategy. This concept describes the maximization of profit from a product basing from the difference between the products price and variable cost.
Massive amounts of 30 seat server is expected to be sold with the low pricing of such product line but balancing such we have the high priced upgrades which would come in smaller amounts but will be able to cover and generate more profit for the company.
Psychological Pricing Strategy
Pricing products with 0.99 or 0.98 has a psychological impact driving more demand from customers (Psychological Pricing Strategy 2011).
According to a study conducted by the Marketing Bulletin in 1997, 60% of prices in advertising materials end with 9, 30% end with 5 and 7% end with 0 (Holdershaw, Gendall & Garland 1997). Psychological pricing strategy allows sellers can charge “the largest possible cent component (99¢) without significantly affecting the average of cent components and without changing customer behaviour” (Basu 1997).
Price Leadership Strategy
Developing a systematic pricing strategy in positioning Clearwater Technologies in monopolizing the industry, the company should consider itself a price leader setting and dictating the industry’s price for servers and services (Price Leadership 2008).
Absorption Pricing Strategy
In price absorption strategy all costs must be recovered. Prices of products must include variable and fixed cost.
In the QTX server pricing, since the 30 seat servers are priced lower than its original cost and capacity upgrade prices are priced higher thus prices for all products must be balanced out making sure that all costs for all products produced and manufactured are recovered avoiding company lost at the same time generating more profits.
High-Low Pricing Strategy
In a high-low pricing strategy, products and services are priced higher than their competitors but market share and customers are drawn in because of low marketing activities such as advertisements and sales promotions (High-Low Pricing 2011).
These activities that drop prices of products and services temporarily are geared towards bringing in customers and capturing market share, earning clients’ loyalties towards the vendor (Kolter & Armstrong 2010).
Clearwater technologies can adopt the high-low pricing strategies in complying to the Vice President for Marketing’s request in considering the 3 factors in pricing. 30 seat servers should be cost low but may be done only during a specific period of time as a sales promotion.
Premium Decoy Pricy Strategy
The premium decoy pricy strategy is a method in which the vendor prices a certain product exceptionally high in order to shift customers’ attention in buying another product thus boosting sales of the cheaper product.
This strategy is ideal in drawing attention and making Clearwater Technologies’ 30 seat QTX server as the primary choice of customers since it is priced lower compared to other alternative products in the vendor’s line for the 10 and 20 seat servers may seem a bit pricy with limited slot usage.
The 30 seat server must catch the attention of customers with its affordable price, the quality and service it can provide with its huge capacity. By pricing other alternatives a little higher than their original price, this strategy will divert the attention of buyers and customers.
Conclusion
A mixture of different pricing strategies overlapping in an organized manner is essential in producing the right price in accordance to the Vice President of Marketing’s suggestion. The 30 seat QTX server must be priced lower than the others because it is important to get as many customers to purchase the said product on the initial transaction.
By doing so not only does the company illuminate competition from entering the market and industry but also capturing the market share making Clearwater Technologies a monopoly in the small and medium sector of QTX server product and service provider.
Other products such as the initial purchase of 10 and 20 seat servers and the upgrading of seat capacity must be price according to their manufacturing cost with value added margin.
Such execution of cost-plus pricing strategy gives both clients and vendor a factual basis on the pricing while for upgrades after the first and second purchases would be price a little bit higher for the company to earn and generate revenues. Combinations of pricing strategies are needed in coming up with the right price which conforms to the 3 factors the Vice President for Marketing advised the 3 officers.
It is important for the company to understand customers’ definition of value and what they are willing to pay for. At the same time prices must be fair in order to satisfy the market’s wants.
Clearwater Technologies must position itself as a price leader in the industry but in order to do so it must first capture the market and become a monopoly, thus price strategies which help the company capture markets with low pricing but without sacrificing its premium branding is essential in its way of managing its prices.
In this paper 12 pricing strategies are recommended for Clearwater Technologies’ finance, management and sales team to use in computing for the proper prices of QTX servers from the 10 seat to the 30 seat capacity servers.
As of the moment the company has a competitive edge because of its initial involvement in the industry but over time competitors will be present thus the teams need to plan not only for the present prices of the QTX server but also anticipate competition as early as the present.
Reference List
Basu, K 1997. “Why are so many goods priced to end nine? And why this practice hurts producers?”, Economic Letters, vol. 54, no. 1, pp. 41-44.
Gittings, C 2002, The Advertising Handbook, Routledge, New York.
Holdershaw P, Gendall P & Garland R 1997. “The Widespread Use of Odd Pricing in the Retail Sector”, Marketing Bulletin, vol. 8, no. 1, p.8.
Hutt, D & Speh, T 2009, Business Marketing Management B2B, 10th edn, South-Western Cengage Learning, Ohio.
Kolter, P & Armstrong G 2010, Principles of Marketing, 13th edn, Pearson Prentice Hall, New York.
Maheshawi, Y 2005, Managerial Economics, Prentice Hall, India.
Milgrom, P & Roberts, J 1982, “Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis”, Econometrica, vol. 50, no. 2, pp. 443-459.
Monroe, K 2003, The Pricing Strategy Audit, Cambridge Strategy Publications, Boston.
Price Leadership, 2008. Web.
Price your product or service. Web.
Psychological Pricing Strategy, n.d. Web.
Van den Poel, D, De Schamphelaere, J & Wets, Geert 2004, “Direct and Indirect Effects of Retail Promotions”, Expert Systems with Applications, vol. 27, no. 1, pp. 53-62.
Van den Poel, D, Vindevogel, B & Wets Geert 2005, “Why promotion strategies based on market basket analysis do not work?”, Expert Systems with Applications, vol. 28, no. 3, pp. 583-590.
Players in the same industry are more likely to sell their products with the same margin however sometimes individual company may need to sell its product either higher or lower depending with the prevailing condition. When selling higher than once competitors, the company should ensure there is value for money; the products must have something unique than that one offered by its competitors.
Despite the high cost, customers will be kept coming by the quality that the company is able to offer for instance when the company offers a unique products or it is the first one to offer a certain product in the market, then it can adopt premium pricing model at the introduction of the product to attract higher gains but offer the required quality by the customer (Kerin & Peterson, 2009).
There are times that a designer shop may be know of selling its goods cheaply than the prices set by its competitors; in such a case, the company needs to ensure that the fact that the goods are cheap does not mean that the quality has been compromised; there should never be a trade off, the only thing that can make the commodity cheaper is economies of scale, trade discounts, reduced profit margins, and some occasional offers and promotions.
The target market comes into play when reducing prices; the company should ensure that a price reduction does not create the perception that quality is low (Kotler & Kevin, 2006).
Effect of pricing on designer’s/brand products
Other than price playing the role of marketing the products, it has some psychological effect on consumers mind and influences their behavior; the pricing strategy adopted by a designer shop should be managed effectively to differentiate the product from those offered by its competitors. When making a certain designer apparel, there is the target market that the particular commodity targets; the market in this context is dividend according to economic wellbeing of the segment market (Anon, 2010).
When deciding the prices, they may be used for two main reasons depending with the economic status of the target market; in the case of the well to do in the society, an improvement of quality or an introduction of more variety brands in the market then increase the commodity prices may be an indication of better quality and probably this will increase the demand for the commodities.
Among the less fortunate in the community, reducing the products costs using discounts, gift vouchers among other methods of saving a shilling or two to the customer will go well with them; they are likely to brand the company as selling products at a lower cost that the cost sold by others (Christ, 2008).
Conclusion
In either case, the most important thing is to understand once customers and target market; when prices are increased, the company stands to benefit higher margins of profit as they offer quality to their customers, alternatively when the prices have been reduced, the expectation is that the number of customers will increase leading to an increase in sales and economies of scale comes into play.
The most important thing to keep in mind in either the approach is that quality should not be compromised regardless of whichever the act, the general statement is that it is better to sell high quality products expensively than sell low quality cheaply (Anon, 2008).
References
Anon. (2008). Advertising Primer. Small Business Administration. Web.
Anon. (2010). The Impact of Relevance in Publishing AND Advertising. Web.
Christ, P. (2008). Principles of Marketing. Web.
Kerin, R. A.,& Peterson, R. A. (2009). Strategic Marketing Problems: Cases and Comments. London: Pearson Education.
Kotler, P., & Kevin, L. (2006). Marketing Management. New Jersey: Prentice Hall.
Skimming and penetration pricing are two strategies for the creation of better profits. These strategies are employed by the businesses releasing new products and requiring promotion of the appearing goods. Penetration pricing is based on the offering of lower prices for the new products in order to attract buyers and create customer base.
The main disadvantage of penetration price is that its gradual growth over time might lead to the loss of customers. Skimming pricing is a strategy consisting of three phases. Each phase has different product price, the first price is the highest and then it gradually goes down. This strategy is suitable for well known brands and relies on the chase after fashionable products.
If the brand is not developed enough, this strategy will fail. Alba and Gavigan are a celebrity couple, so their product would be the focus of customers’ attention right away, although skimming price may not work because the product is not a fashion attribute, it is about the health and welfare of babies, so the customers would be focused on choosing brands they trust over the ones that are fashionable.
Offering a penetration price and then gradually raising it may distract some customers, yet since the product really is of good quality, this threat can be avoided if The Honest Company manages to win many loyal clients. This way, the couple is recommended to go with the penetration price; this will create reputation and help win the trust of customers.
It is important to remember that the price should not be very low, but accessible; otherwise, the customers may start to doubt the quality of products. Since Alba and Gavigan are oriented at the creation of honest business and maintaining long term profits, penetration price is the way to go. The celebrity status of the business owners will serve as a very good promotion tool for The Honest Company.
This way, the company should expect high sales right away, and after the customers start to appreciate the products, loyalty developing strategies can be applied to keep and even maximize the size of The Honest Company’s customer base. Besides, this strategy fits into the company image anticipated by Alba and Gavigan. Their business provides good quality all-natural products for babies for a fair price.
This strategy will secure their business from losing clients in the long term. Finally, to keep increasing their profits over time, the business owners may start to increase the price for their goods gradually. Baby food and hygiene market is the field where the customers care about the quality of the products the most.
This is why once a company earns a reputation of a fair and reliable business their customer base size will become steady or even win more buyers ready to pay higher price for better quality products.
What price would you bid if you must win the project?
As the owner of a small building company willing to bid on a government contract for the building of a pedestrian walkway in a national park during the coming winter and having to compete with three other bidders I have made some calculations.
First of all, I tried to estimate the approximate lowest bidding barrier for each of the bidders based on my competitor intelligence; this way, the first bidder has the lowest bidding price of $397980, as their incremental costs exceed those of my company by 10%, the second bidder’s lowest bidding price would be $435200, and the third bidder’s barrier is $484000, the lowest bidding price of my company is $428800, yet since my capacity utilization is moderate, the company would not assign the lowest price possible and neither would my first and second competitors.
The first bidder has the highest capacity utilization rate, so they are likely to bid the highest amount possible, which is for them approximately $442200 (incremental cost plus 50%), this way to win the project my company has to bid higher than $428800 and lower than $442200.
The difference between the bid of my company and the first bidder has to be significant because the first decision maker is the buyer’s relative, so my final bidding price would estimate $435000. Since it is a government contract that assumes no extra costs, the buyer is likely to have very low risk tolerance and $7200 difference would be enough to break the family ties.
To maximize my expected value from the contribution to this project I would assign a higher price of $455600 (incremental costs plus 70%) because my capacity utilization is moderate. With this price I would still have a good chance to win the project because the first bidder is a small and inefficient plant and they do not like winter contracts.
The bidder number three is rather expensive, besides, the decision maker there is looking for a promotion and plain government contract is hardly a way towards that for a creative competitor from a large and efficient plant. Finally, the second bidder seems to have the same prices as my company, yet they do not appreciate messy and inconvenient jobs and their decision maker is looking for a new job, which serves as a strong de-motivating factor concerning the success of winning this project.
Pricing strategy refers to the series of maneuvers that businessmen employ to arrive at the final price of a new product at the market.
In general, a business man should follow the following steps before settling down on the price of a commodity: come up with a marketing strategy, decide on the marketing mix, determine the demand versus price relationship, calculate the cost incurred, consider environmental factors, outline the pricing objectives and finally settle down on the cost of the commodity (Anon 2).
Putting into consideration a few examples, Tata, an Indian car company introduces the cheapest car in the market which after selling for a while undergoes a price hike. The company would have failed to maintain the cheap price due to various reasons. For instance, despite the car’s cheap price, it did not realize market share maximization which was one of its targets since it sold just 45,000 in a country of over a billion people.
The company had considered some ethical issues before settling down on the price like excluding features that may raise the cost of production and setting the plant near the source of raw materials. However, low prices are usually prone to price wars and may be considered internationally as dumping.
Again, the Indian government initiative to develop the cheapest PC attracts so much debate from manufacturers. This goes hand in hand with the introduction of $35 tablet PC which appears to be impossible to many. Such initiatives may be successful since the government may subsidize the manufacturing cost in its efforts to make each of its citizens own a PC.
The government considers legal issues like subsidizing the cost for the benefit of their consumers, though it may raise questions from other manufactures. However, price standardization has not been accepted in many countries.
Automobile Sales
Examining the conversation between the three car dealers and the report thereafter, it is very clear to everyone that automobile prices have drastically gone down by a very high percentage compared to the previous years. Many programs have been put in place to have the prices cut by almost 40% that have seen all kinds of vehicles going at a lower price.
Apart from prices falling, car sales are not very good probably due to gas prices. However, quite a good number of people are targeting the collapse of the general motors’ hoping that this would cause the prices to fall even further.
Manufacturers have been employing various pricing strategies to ensure that despite the low prices and low sales, they still remain in the market and do not undergo losses. There are five pricing strategies that are evident in the automobiles industry which include price skimming, penetration pricing, experience curve pricing, complementary product pricing and break even pricing (Rao 15).
Price skimming involves setting initial prices very high to target those customers who are less sensitive and then gradually reducing the prices to have them fall even further. The referred articles show that automobile prices were higher in the previous years, have shoppers like Ousman who rarely bargains and also most people are waiting for General Motors to collapse hoping for even lower prices.
In penetration pricing, the dealers set lower prices to accelerate product adoption as we can see dealers hoping that customers will flock in the showrooms. “Experience curve pricing” targets higher volumes of sales and lower costs through accumulated experience.
Complementary product pricing is seen where one dealer says that most profits are not realized from new cars but after sale services like spare parts. Finally, no dealer talks of incurring losses meaning that they have employed the break even pricing (Langfitt 2).
Product Marketing Versus Service Marketing
There is a major difference between marketing of product when compared with marketing of services. Many business men market their tangible products very easily but find it very tricky to market services. Several features significantly differentiate these two kinds of products some of which are discussed below.
Marketing of a service involves marketing of relationship and value as compared to the visible tangible product. Relationship and value needs consumer conviction rather that a tangible product that he/she can confirm of the same. The physical presence of a commodity has more appeal to the consumer rather than something that can only be confirmed after it has taken place.
For example, it is possible to look at the value of a packet of maize flour by looking at the ingredients whereas it’s not possible to know the value of counselor’s services. Whereas the reputation of a tangible product can be determined by the various products on display, the reputation of a service is time based and depends on how a particular individual can deliver that service.
For instance, it is not easy to determine the reputation of a lawyer unless you confirm the way he will defend you whereas by walking through a showroom, it is easy to outline the reputation of various car models. Again, it is easier to test the quality of a tangible product, like checking the features of a computer that you may be looking for but it is very difficult to test the quality of a service before receiving it.
For instance, you can only confirm the quality of the work of an architect by the products of his structural planning. Also, a consumer can return a tangible product to the seller but a service cannot be returned (DK 6).
Works Cited
Anon. Pricing Strategy. NetMBA Business Knowledge Centre, 2010. Web.
DK. Product Marketing vs. Service Marketing What You Need to Know. Business Knowledge Source, 2010. Web.
What are your thoughts on the success or failure of these two initiatives?
Tata Corporation has recently announced that it will manufacture, and sell later this year a four passenger vehicle that will sell at around $2100. At that price it will be the cheapest car in the world. The Nano is a safe affordable, all weather vehicle aimed at hundred of thousands of families in India who would otherwise have bought motorcycles.
The Indian Ministry of Development on the other hand has announced that, it will develop and distribute an ultra-cheap tablet PC, the Sakshat which will retail at 35 US dollars equivalent to 27 Euros. The computer is aimed at students and low-income groups especially in the rural areas of India.
The two initiatives are likely to succeed because of several reasons. First, is because of the fact that these products are targeted towards a market segment with a huge untapped potential.
The millions of people in the low end of the market have been neglected in the past and no products have been developed for this market segment. These people have been ignored by manufacturers in the past because they were thought to have no buying power.
Secondly, the initiative is likely to succeed because the price cost of owning and using the products is affordable. The Nano costs about $2100 and its fuel consumption is very low at 50mpg.
Likewise the tablet PC costs $37, a price so low that IT experts doubt whether it would be attainable. The PC can be powered using solar power therefore those not connected to the power grid are not affected. These costs are within the reach of many ordinary people who compose the target market.
In addition these products despite their low prices do not compromise on quality. The Nano meets all the safety and environmental requirements which makes it’s as safe as any other vehicle to drive. The tablet PC on the other hand has advanced features which are found in modern tablet PC such as Android software for browsing the web, it is Wi-Fi enabled, has a seven inch screen, USB ports and 2 GB memory.
In conclusion the products are most likely to succeed as they target a huge unexploited market; the products are affordable and the government minister is determined that the project must succeed whatever it takes, on the other hand the Tata management has put in place mechanisms such as expansion of manufacturing plants in order to ensure that the project succeeds.
Ethical Issues
It is commendable that the two organizations seek to bring useful products to low-income groups and the underprivileged in the society. The Nano affords the poor, a safe, all weather, and comfortable car while the Sakshat computer enables millions to be integrated into the global IT revolution. The two products put aside the strong profit maximization motive and instead aim to help the underprivileged in the society.
Despite being cheap, they do not compromise on quality and standards and the burden of maintaining and operating the product is minimal (50mpg) or zero when solar powered.
The negative imperative is that the cost of producing the tablet PC may require government subsidies which IT experts feel is not what the people in the rural area need because it is designed for university student. This implies possible wastage of government funds.
In the case of the Nano, the car is stripped of certain features such as airbags; these means it is less safe than others. Regardless of the need to economize safety standards should be maintained at all cost even if it requires the price of the vehicle to be increased upward.
Creative Pricing Strategies
In this section we are going to briefly discuss the five major pricing strategies that are evident in our case scenario analysis, these are;
Discounts and rebates: Car dealers are offering discounts and rebates to entice customers to buy. For example a fully loaded Ford Fusion whose price tag is $25,000 goes for $20000 when “all is said and done” (Langfitt).
Substitute products: Car dealers propose to customers’, products that match the customer’s budget and desire. For example, a customer with budget constraints might opt to buy the lower priced S model of Ford Fusion rather than a more priced model.
Used cars: Car dealers also use the option of selling used cars to their customers to meet the needs of people who may want a car but may not be able to afford a showroom vehicle. Most dealers apparently make higher margins on used cars than new cars because unlike new cars whose prices and margins are fixed, used cars are not.
Trade-ins: This refers to when the value of a used car is used as payment for a new car which is deductable from the overall amount. The buyer would benefit because they don’t have to incur costs and time advertising their old car but get a rebate for the value equivalent to their old car.
Selling value products: Car dealers are stocking vehicles that correspond to the prevailing market conditions. When the price of fuel goes up for instance, fuel- efficient cars or cars using alternative fuels are sold at a premium price; one the other hand when the situation changes such cars are sold at a discounted price.
Types of Marketing
Marketing of products is different from marketing of services for various reasons; however the main reason is because products and services are essentially different in nature and form; whereas you can see touch smell and feel a product, services are intangible, invisible and transient (Lovelock and Wirtz).
Another difference is that products can be stored; services cannot be stored and have to be consumed in real time (Lovelock and Wirtz). Finally, products especially durable ones are produced long before they are to be consumed while services are produced when a customer orders for them and consumed immediately usually at the same place.
Some of these examples are when a car is manufactured long before it is delivered to a show room or a service like a visit to the dentist where the dentist treats a patient only when the patient enters into a dentist clinic.
Since services are invisible and intangible, it is difficult for prospective customers to know the quality of services they are buying. When buying a product e.g. furniture a customer can see, feel, smell, touch the product and decide what to buy.
Works Cited
Langfitt, F. “Cash or Credit, Car Deals Abound.” National Public Radio, 2009.
Lovelock,C. & Wirtz, J. Services Marketing: People, Technology, Strategy 6th Ed. New Jersey: Prentice-Hall, 2007. Print.
The theory of marketing establishes pricing as one of the major contributors of the marketing mix. Pricing attracts potential buyers and inspire them to purchase goods. Fast food companies distribute and advertise their products using the marketing strategy; they also apply the strategy to retain a desirable business relationship with their clients. Pricing is important in marketing mix.
It is however one of the hard decisions experienced by fast food industries because of high competition rates (Myers 1997,p.20), local trading blocks, counter market requirements (Cavusgil & Zou 1994,p.18) and harsh exchange rates (Knetter 1994,p.14).
Fast food customers have different opinions about the products produced by different fast food restaurants depending on their pricing. For that reason, setting product price to satisfy different customers is a hard task. The price of a product may have an effect on consumer’s feelings about the quality of the product.
Fast food companies have to come up with pricing strategies for their products in order to fit into global markets.
Fast food industries are faced with a hard task of setting prices for global markets. Different countries have different decisions concerning products, their pricing and distribution in global markets and local markets (Jain 1998, p.71).
In addition, other factors like trade penetration, product demand and competition, control over competition entry, market and environmental factors, fast cash recovery, political, social-cultural and economic factors should be considered when making pricing decisions for global markets.
Pricing strategies
Price is the value charged for goods and services in monetary terms. The price of a product takes into account the cost of producing the item, the cost involved in providing the item to the customer and the amount expected in profit to avoid being eliminated from the business.
In order for the fast food companies to stay in international markets, they should try to maintain best quality at lowest price. Price can be direct indication of quality of goods and services. Fast food companies should therefore consider different factors before pricing their products when venturing into global markets.
Reasons for selling globally
Companies opt to sell globally following the pull factors attracting them to foreign markets, and the push factors that make local markets unattractive.
Some of factors that have led fast food companies to go international include: production of goods for international export only, congestion of local market thus goes globally to enjoy large economies of scale, the type of products that call for companies to operate globally and saturation of local markets.
Fast food companies should consider pricing as a measure of readiness to face competition not only from local markets, but also from global markets. Being globally competitive is important for the success of fast food companies’ exports. It also strengthens the domestic companies to counter foreign imports. Success in exports is important to a nation’s economy, not only at macroeconomic level, but also at micro economic level.
Fast food companies that are involved in global markets have an additional advantage to those at domestic market levels. These advantages includes: high levels of sales and opportunities, reduced production cost due to large sales volume, high profits due to low production cost , high competitive power increases the companies status at global market levels and taking advantage over large economies of scale.
Fluctuations in prices of fast foods help the fast food companies to set prices both domestically and globally. Discovery of new markets for their products with low local prices assists these companies in setting the prices of these products internationally.
This helps in extending the life cycle of the product in the market. Fast food companies that operate internationally have the advantage of finding untapped markets for their products; therefore, they have a choice of fixing prices for their products.
Pitfalls of international markets
Knowing the pitfalls associated with international markets is a strategy that is applied by fast food companies when setting the prices for their products. Some of these pitfalls include: a lot of time is required by the management in decision making process and neglect of domestic industries as a result of a lot of devotion to international companies by the key staff.
Additional industry facilities maybe required and advertising and sales promotion might be needed to translate into overseas languages.
The products might require more modification to cater for global market requirements and the companies may be required to offer credit facilities to curb competition and domestic custom transactions, which consumes lot of time. Considering these pitfalls is an important strategy that fast food companies should use when setting the prices for their products globally.
Global markets vs. domestic markets
Before making decision about setting prices for their products in global markets, fast food companies have a task of determining the factors that influence the environment in which the international market takes place. They should take precautions like making comparison between the natures of local market with that of international market.
Basically, there are added complications associated with making sales across international borders. These challenges may be associated with environmental, economical, legal and cultural factors of the new global market. The company may be required to follow some regulations, both political and monetary; this may affect the initial stages of global pricing and marketing (Diamantopoulos 1995,p.6).
Fast food companies that operate in international markets face more competition as compared to those operating locally. International markets are comprised of extra markets as well as new environments and parameters.
This means that companies have to take more marketing and administration functions. Therefore, when pricing for global markets, these companies should consider the change in attitudes of the targeted clients. It is imperative to carry out a survey to get accustomed with the consumers’ culture, religion and language (Douglass & Wind 1987, p.24).
For fast food companies to survive and to be established in international markets, they have to think ahead of their local markets. The duty associated with global markets is similar to that of local markets. In both cases, consumers are the driving powers towards marketing, and therefore, companies need consistency in production.
The pricing should match the market needs and their distribution channels. This can however be different in the domestic markets. Therefore, companies get used to the requirements of these domestic consumers. However, at global levels, economic, social, political and technological factors have been used to examine international market opportunities in pricing products.
Social factors
Different people from different cultures have diversity in tastes of products. When setting the prices for their products, fast food industries should put into consideration the population structure of the international market they are targeting. Most major international markets of western culture are comprised of an aging population. The demographic trends associated with countries like China and India indicate a high rise in global marketing.
Social factors will incorporate the emergence of young people as a new market segment. New global markets, like Africa, are growing and becoming a significant part of international trade. Fast food companies have to consider the local languages, education and religion, values and attitudes, material culture and aesthetics.
Fast food companies have the responsibility of cautiously studying the target group in the market, customer’s behaviors and their purchasing power.
According to Douglass and Wind (1987, p.27), the level of pricing is a significant criteria applied by customers in determining the competitiveness of a product. In addition, other criteria like the quality of goods and their performance are also vital to customers.
Therefore, when pricing, fast food companies must have information concerning perceptions, tastes, preferences and purchasing power of consumers in regard to the prices of the products (Theodosiou 2000, p.247).
Technological factors
In order to come up with good pricing strategies, fast food companies should examine the technological nature of the global market. Advancement in communication and infrastructure is a significant step in satisfying the needs of customers.
Most international companies depend on already established local infrastructural networks for distribution of goods to their customers. This is cost effective and may have a great impact on price and profits. Technological advancements are dynamic phenomena.
An ideal example is the Internet; it facilitates online transactions between companies’ suppliers, partners, customers and subsidiaries worldwide. However, it can also create an increase in competition, and therefore, technological advancements create both challenges and opportunities.
Pricing is affected by environmental factors; by considering the fundamentals of cost and self interests of the companies, fast food industries should take advantage when there is a fluctuation in environmental factors (Williamson 1975, p.34). Due to technological improvements, environmental factors such as monetary and competitive forces affect the global performance.
Economic factors
The economic stability of any international market is measured using its Gross Domestic Product (GDP). An increase in GDP means an increase in demand for products and services. Fast food companies should put into consideration the flow and distribution of profits within the country which they want to invest. In this way, they are capable of determining their pricing following the GDP of that country.
It is important for the companies to look not only the current economic development of a country, but also the future development. This can be determined by the overlook of country’s demographic trends, the trends on economic development and inflation, income distribution and age, the state of urban growth as well as activities that will influence markets and pricing.
The nature of the economy of a host nation affects the decisions concerning pricing. It affects the company’s costs; influences demand power of a particular product in the market and the will to purchase a product by the consumers (Whitelock & Pimblett, 1997, p.48).
Political factors
According to Theodosiou (2000, p.249), pricing is determined by rules and laws which facilitate modifications of goods, compliance with the hygienic standards, environmental policies, and production procedures that exists in global markets.
Policies set by the government of foreign countries are vital in lawmaking and establishment monetary frameworks. For fast food companies to carry out their businesses in global markets, they should abide by these rules and regulations when setting prices for their products.
Policy environment
For fast food companies to make decisions about pricing their products in foreign markets, they should put into consideration the environmental factors of such markets. These factors are put in place to determine whether such decisions are opportunities or constraints in that market. The social and cultural structure of such a market is the determining factor that is first put into consideration.
By accepting bilateral market agreements and other fiscal and policy interactions, companies should also abide by the country’s marketing standards and rules. Therefore, companies must obey the law; know government policies and the way they are created. This is vital for their decision making concerning the product pricing (Myers & Harvey 2001,p.4)
Conclusion
Pricing can be considered as one of the greatest challenges faced by fast food companies. Making decisions concerning the price in global marketing is a complicated task. It may comprise the cost of production, cost of distributing the goods and the outcome of goods in terms of profits in order to remain in the market. Appropriate pricing considers the costs, competition and demand for the product in the market.
In local markets fast food companies have a freedom to price their products without taking into account the pricing policies of their competitors. This also applies to international markets where the market is dominated by many competitors. Fast food companies are left with no choice but to follow the existing price, or sometimes lower their prices to sell more and win more customers.
Refrences
Cavusgil, T & Zou, S 1994, “Marketing Strategy-Performance Relationship: An Investigation of the Empirical Link in Export Market Ventures”. Journal of Marketing , vol. 58 no. 1, pp.1-21.
Diamantopoulos, A 1995, Making Pricing Decisions: a Study of Managerial Practice, London, Uk, Chapman and Hall.
Douglass, P & Wind, Y 1987, “The Myth of Globalization”. Columbia Journal of World Business , vol. 22 no. 1, pp.19-29.
Jain, S 1989, “Standardization of International Marketing Strategy: Some Research Hypotheses”. Journal of Marketing , vol. 53 no. 1, pp.70-79.
Knetter, M 1994, “Is Export Price Adjustment Asymmetric? Evaluating the Market Share and Marketing Bottleneck Hypothesis”. Journal of International Money and Finance , vol. 13 no. 1, pp.13-68.
Myers, M 1997, “The Pricing of Export Products: Why Aren’t Managers Satisfied with the Results”. Journal of World Business , vol. 32 no. 3, pp. 277-289.
Myers, M & Harvey, M 2001, “The Value of Pricing Control in Export Channels: A Governance Perspective”. Journal of International Marketing , vol. 9 no. 4, pp.1-29.
Theodosiou, M 2000, “Factors Influencing Degree of International Pricing Strategy : An Empirical Investigation”. Marketing in a Global Economy Proceeding , vol. 36 no. 3, pp. 246-530.
Whitelock, J & Pimblett, C 1997, “The Standardization Debate in International Marketing”. Journal of Global Marketing , vol. 10 no. 3, pp.45-66.
Williamson, O 1975, Markets and Hierarchies: Analysis and Anti-trust Implications, New York, The Free Press.
Although the initial cost of the equipment necessary for HDTV was rather prohibiting, HDNet has chosen to wait for its decrease. As the equipment became affordable for the average customer, the industry received the opportunity to flourish.
HDNet is one of the pioneers in the market, which means that the competition at the moment described is not particularly high, even though it may increase in the future. The fact that more than 60 million TV sets in the US may be used for HDTV proves that the business has all the chances of expanding. At the same time, taking into account the fact that new technology may result in customers’ confusion, HDNet and the resellers carry out careful distribution strategies, offer equipment and its installation as they do everything to facilitate the introduction of HDTV.
Having made deals with numerous cable and satellite television providers, HDNet has secured its position and made it obvious that it is not planning to leave the market. By offering unique programming along with the popular content (movies, live sporting events), HDNet ensures that it will stay in demand. The fact that TV is among the favorite leisure-time activities in the US suggests the same (Kotler and Keller 79).
Evaluation
From the information given in the case study, it may be concluded that HDNet intends to carry out a market skimming pricing strategy. All the conditions for such a strategy exist in the described situation: the demand for high-quality, high-dimension TV is sufficient, the costs of the corresponding equipment have dropped, but at the moment the market is not flooded with competitors, and the high-quality, high-end product, which appears to be the image that HDNet is endeavoring to maintain, is associated with the current costs (Kotler and Keller 390).
Price Projections
HDNet plays a crucial part in the product lifecycle since, as it has been pointed out, the original, unique content provided by HDNet is complemented by other types of popular programming. The resellers’ sales promotion strategies are well-thought-out. Different resellers offer the necessary equipment (DISHNET includes the TV set), professional installation, and packages of services; cable operators recommend HDNet as a premium service, which means maintaining the image of a high-quality product. Apart from that, resellers offer their customers free trial periods. All of these factors are bound to attract potential customers, the number of which, as it has been mentioned, is quite enormous.
The competition in the market described in the case study is not too high, as HD television is only beginning to flourish with the decrease of the equipment costs. The demand, on the other hand, is expected to skyrocket, given the high appeal of the product and its growing accessibility. The quality perception is not only positive; it is also one of the main advantages HDNet has over the not-HD television. Given all these factors, one may conclude that the price demanded by HDNet may be above the average one as the company intends to create an image of a high-end product.
Positioning the original content as a unique and valuable asset can be an effective strategy that has been illustrated by the success of Discovery Communications. The popularity of its products at least partially owes to promoting the image of the channels that are “satisfying curiosity,” “enlightening,” and “encouraging to explore” (Kotler and Keller 259).
Skimming strategy presupposes high initial prices and their subsequent lowering (Kotler and Keller 390). It is obvious that the situation in the market described by the case study allows HDNet to demand a high initial price and gain the most from being one of the pioneers of the industry. It is possible that the price will have to be lowered as it is going to adjust the changes in the market, but the uniqueness of the content suggests its competitiveness in the future.
Works Cited
Kotler, Philip, and Kevin Lane Keller. Marketing Management. 14th ed. Upper Saddle River, N.J.: Prentice Hall, 2012. Print.
The significance of project pricing estimations can hardly be overrated; providing a strong foundation for the further financial strategy of the organization, it serves as a means of locating the financial issues that may emerge and impede the process of the company development. Moreover, the estimations in question contribute to the creation of an elaborate allocation of the project resources, thus, providing the project members with options for addressing possible crises.
Thus, even in the worst-case scenario, an organization may handle financial issues once the necessary estimations are carried out. Since the project in question is managed with the help of the principles of sustainability, requires a comparatively small amount of financial resources, and depends on the target buyers’ behavior to a considerable extent, it will be reasonable to assume that the project will have to be based on value pricing.
Among the existing pricing strategies, the one that includes a flexible system of discounts and a range of options for the customers’ needs to be mentioned. First and most obvious, the clients will have to be presented with opportunities to buy the target product cheaper. Specifically, the buy-two-get-one-free scheme will have to be considered as an option. While it would be unreasonable to make the selling price of the T-shirt equal to its actual value, it is still necessary to provide as many options for the target customers to save money as possible, since students typically tend to seek opportunities in terms of saving money. Herein the importance of considering the specified approach lies.
Another pricing system, which can be adopted in the designated scenario, the competition-based pricing system deserves to be mentioned as a rather efficient tool for attracting the target denizens of the population to what the project has to offer. According to the existing taxonomy, the specified tool helps the project strive in the realm of stiff competition (Kerzner, 2013). On the one hand, the above-mentioned approach can be deemed as fairly reasonable, seeing that there are a plethora of products similar to the one in question. On the other hand, it should be borne in mind that the product under analysis should be viewed as a token rather than an item of clothing. Therefore, a different strategy needs to be considered.
The penetration strategy could be viewed as an option if the product in question could be deemed as worthy of entering the market in question. While the approach in question helps build loyalty among the target denizens of the population, it requires a considerable amount of time. Nevertheless, the emphasis on the devotion of the customers to the product and the organization can be considered feasible, as the products under analysis are linked to the college directly and, therefore, have a brand name already.
The high-end approach could be viewed as an option in case high-quality products could be provided to the target population. However, as it has been stressed above, the emphasis is going to lie on a reasonable price-quality ratio; given the time and the resources that the product in question has, it would be rather risky to promote it as a high-quality brand.
Another tool that can be used for defining the pricing strategy of the organization, the loss leader approach (Markus, Manville, & Argus, 2013) should be viewed as an option. When it comes to considering its advantages, one must mention the fact that the strategy in question is based on the principles of sustainable resource usage and, therefore, will serve as a decent platform for developing the sustainable production process as well as the process of selling the goods.
The choice of the approaches listed above is primarily predetermined by the three “P’s” of four, i.e., the product, the place, and the promotion strategy. Seeing that the college campus is defined as the place, T-shirts being the key product, and the reasonable price-quality ratio being the key selling point along with the fun memories of the academic years, reducing the price of the product and offering numerous discounts will be the most sensible step. Therefore, the cost per unit must also be reduced significantly. Herein the necessity to locate cheap options for retrieving the necessary resources and arranging the production process lies (Larson, 2012).
Choosing between the five strategies described above, one should give preference to the latter as it allows for the most reasonable use of the project resources. Particularly, it creates the conditions, in which selling the product at the lowest price possible does not conflict with the allocation of the project resources. Particularly, the total number of costs taken in the course of the project completion does not exceed the benefit to be retrieved as the products are promoted to the target audience. In other words, the tool in question offers the pricing strategy based on the principles of a sustainable economy.
Also, it charts the road for the project to take in case of a failure. Indeed, though the chances for the project to attract a small number of clients are rather low, yet they remain a possibility. Moreover, unpredicted costs may occur in the course of the project completion. The strategy in question, in its turn, will provide the members of the project with enough wiggle room for avoiding bankruptcy and retaining at least some of the benefits. Therefore, it should be viewed as the most favorable option.
The issue of labor distribution also needs to be touched upon as one of the key issues of the project. To enhance the promotion of sustainability in the project, the adoption of the U.S. General Services Administration LDS (Labor distribution system, 2015) will have to be considered. The specified system provides an opportunity to track down the key processes carried out in the system; as a result, the outcomes of the company’s transactions can be forecast rather easily based on the information provided after analyzing data with the help of the system in question.
Pricing out
Needless to say, to succeed in the target market, it will be necessary to calculate all costs, which will be taken to produce the T-shirts, i.e., retrieve the necessary raw materials, recruit the staff members, who will be involved in the production process, design the clothes, create and print the corresponding logo on them, develop an efficient marketing strategy, and create an elaborate way of delivering the products to the end customers.
A closer look at the costs, which the project will have to take, will reveal that the total sum required will make approximately $1,000. Seeing that 200 T-shirts will be produced, the cost per product will make $5. Hence, an item will have to cost at least $6 to cover the expenses. It is, therefore, suggested that every item should cost $10. Thus, the project will have extra resources in case some impediments will emerge and slacken the production process down.
Bidder
The lowest bidder issue also deserves special attention due to the controversy involved. Since the project under analysis ca be deemed as low-budget one, being overly selective in the choice of the labor force could be unreasonable. Thus, the project members will have to select the labor force based on the lowest bid provided. The above-mentioned strategy, however, may lead to picking the staff of extremely low competency levels; consequently, the quality of the products may be compromised, and the success of the project will be jeopardized severely.
Thus, the same principles of sustainability will have to be adopted to address the dilemma in question. Although increasing the wages of the staff will be hardly possible, the project leaders may consider the idea of giving the staff members incentives, free products, and the chances to get free extras. Thus, the project managers will have a chance to increase the bid and, therefore, make sure that the staff members are of the required competency level.
Produced in a rather small amount and for the audience that is unlikely to pay a large amount of money for the products in question, the goods in question will have to be offered for a reasonable price to the target audience; herein the need to adopt a flexible and sustainable pricing policy so that the project would not fall apart. In other words, a sustainable approach based on the reasonable allocation of the project resources.
Reference List
Kerzner, H. (2013). Project management: a systems approach to planning, scheduling, and controlling. New York Coty, New York: John Wiley & Sons, Inc.
Labor distribution system. (2015). Web.
Larson, R. (2012). Calculus: An applied approach. Boston, Massachusetts: Cengage Learning.