CaseStudy Skills Assignment:
Usingthe teaching materials and any additional research explain what youthink would be the
mostappropriate pricing method and why for TWO branded products selectedfrom the following list. In doing so compare and contrast the twopricing methods explaining why you think they would be similar ordifferent:.
MEDIADISTRIBUTOR, (e.g. Netflix)
Inanswering this case question, aim to demonstrate your learning notonly of the materials from MOD05, but also those from MOD01-04
Pricingis fundamental element in the marketing mix. Marketers used pricingstrategy to position their brands in the market. Competitors in themarket can use price strategy to compete and gain larger share in themarket (Monroe,2003).In determining price to set for your product it is very crucial tostudy the market so as to be able to set the right price. In pricingthe product, manufacturer calculate cost of manufacturing oracquisition of products. He then adds the profit margin to the totalcost and hence able to price for the product. In studying pricestrategy, we have to consider two brands from two categories namelymedia distributor and canned vegetables. The brands chosen areNetflix and Kame Stir Fry vegetables respectively. Pricing of thesebrands will generally affect other marketing mix such as promotion,channel decisions and product feature.
Tobe able to make a well informed decision on how to price thementioned product brands, seller should follow a sequence of steps asoutlined below:
Heshould be able to develop marketing strategy. This involvesperforming market analysis, targeting, segmentation and positioning.Market analysis gives a clear picture of participants in the marketincluding different product brand in the market. Segmentation dividesthe market to be able to analyze customers according to differentspecific grounds.
Secondlyis making marketing mix decision. This involves defining the productin order to know which category it best fit and how to price it inthe market (Gabor,1988).Distribution of the product in the market will foster a well informeddecision of how the product will be priced. Also, promotion tacticscreate a picture in the mind of the customer and able to perceive theproduct brand differently. Promotion tactics makes customers tobelieve that the product is better than others (Gabor,1988).
Nextis to estimate the demand curve of the product. Demand curve givesthe total quantity demanded in respect to price in the market. Thiswill help the seller to be able to come with the right pricingstrategy and hence making profit. Seller is also advised to come withstrategies to calculate cost including fixed and variable cost. Thiswill enable the seller to determine the total revenue hence profit.If he wants to maximize the profit, he will be in a position todetermine the price of product that maximizes the profit.
Environmentalfactors are also pertinent to observe while determining which type ofprice strategy to embrace (Monroe,2003).This includes competitor’s actions and the legal constraints set bythe local government to control the economy. Another way is to setpricing objectives. These are the objectives that drive the sellerwhen determining a specific price of his or her product. Thisincludes revenue maximization, profit maximization, or pricestability.
Dueto the information collected in earlier steps, seller is now in theposition to select a pricing method which best fits his product.Netflix in this case require a specific approach when determining itsprice in the market. This brand may not contain close substitute inthe market and therefore, it is very crucial to come up with thepricing strategy which enables the product to compete successfully.Kame Stir Fry vegetable also may face some constraints when pricingit. One constraint is close substitute of the product brand.
Oneof the pricing methods is skimming pricing. This type of the methodinvolves setting a high price for the product and selling topotential customer who are not price sensitive (Monroe,2003).This price strategy best fits those products which are priceinelastic. In deep details, price inelastic means those productswhich do not have close substitute. It best fit brand of mediadistributors (Netflix). The demand is mostly inelastic and customersare not price sensitive. Price changes do not have impact to thecustomers and hence possible to set a high price hence more returns.Skim pricing also does not require large cost saving at high volumes.This is due to inability to determine and predict cost saving in highvolumes (Baker,2013).Also, another reason for high pricing is the difficulties of the firmto finance the large capital expenditure due to scarce resources.Hence large production will require a lot of finances and this pushfor a high cost.
Penetrationpricing- This pricing strategy best fit the brand of canned food(Kame Stir Fry vegetables). This is because demand is expected to behighly elastic. This means that customers are highly price sensitiveand the demand will only increase as the price decreases. Due to thesubstitutability nature of the brand, customer will have a widechoice to choose what brand to purchase depending on price of thedemand, hence shifting to another brand that is cheaper and satisfiesthe same need. As the production of the brand increases in volumes,cost decreases significantly. This brand has a threat of competitionfrom other suppliers and this makes it to be highly sensitive.
Asnoted by Baker(2013), skimmingpricing involves setting price in a way that reflects the return toinvestment. Setting a high price for Netflix brand is in order togenerate revenue that can keep the production of it not to cease. Itinvolves analyzing the market demand of customers which must be priceinelastic. These considerations make it similar to the pricingstrategy used to price for the canned vegetables brands.
Inboth, the main consideration is the demand of the customers towardsthe brands. The cost of producing the brands is also pertinent whendetermine the price. The difference in the two pricing strategy isthe consideration of the substitutability of the two brands withother similar product brands.
Inconclusion, pricing strategy is a crucial strategy of position thebrands. Some of the price strategies involves playing with thepsychology of the customers by basing the price on factors such aspopular price points and what customers perceives to be fair. Othermethods target the value of the products. This is mostly used in thefood products such as canned vegetables. This method workseffectively by basing price on the effective value in relative toother alternative products brand. Pricing strategy is the key factorof the returns and therefore sellers dedicate much of their time informulating the method of pricing. It is also important to usemarketing mix jointly for the effectiveness of the firm. None of themis less important since they all aim at popularizing the product andimproving its image to the eyes of the customers. Furthermore pricingis the core factor in any business.
Baker,R. J. (2013). Pricingon purpose: Creating and capturing value.Hoboken, N.J: Wiley.
Gabor,A. (1988). Pricing:Concepts and methods for effective marketing.Aldershot, Hants, England: Gower.
Monroe,K. B. (2003). Pricing:Making profitable decisions.Boston, MA: McGraw-Hill.