Marketing Management – MKT 500
February 13, 2011
Instructor: Dr. Keith C. Jones
Marketing Plan – Pricing Strategy and Channel Distribution for the Note Phone 1. Determine and discuss a pricing strategy (Penetration or Skimming).
Pricing is an important strategic issue because it is related to product positioning and furthermore, pricing affects other marketing mix elements such as product features, channel decisions, as well as promotion. Per Marketing Management, Chapter 8 in Review, “Pricing strategies don’t vary much from low, medium or high”.
For new products, the pricing objective often is either to maximize profit margin or to maximize quantity (market share). To meet these objectives, skim pricing (Skimming is a strategy used to pursue the objective of profit margin maximization) and penetration pricing (to pursue the objective of quantity maximization by means of a low price) strategies often are implemented therefore our product will be using comparable pricing as we are not the market leader, we will have to price our product comparably to our competitors. It is most appropriate for our product as we are expecting: * Demand is expected to be highly elastic; that is, customers are price sensitive and the quantity demanded will increase significantly as price declines. * Large decreases in cost are expected as cumulative volume increases. * The product is of the nature of something that can gain mass appeal fairly quickly. As the product lifecycle progresses, there likely will be changes in the demand curve and costs so as such, the pricing policy will be reevaluated over time to assure we are maximizing our marketing strategies. 2. Determine and discuss pricing tactics (Product line pricing, Value pricing, Differential pricing, or Competing against private brands) to be used for your product.
Pricing strategies need to also consider the price elasticity of demand: if price goes up, will sales go down; will sales stay the same; or will sales go up (if buyers equate price with value, sales might go up). Setting a price that is too high or too low will - at best - limit our business growth and at worst, it could cause serious problems for our sales and cash-flow therefore when setting our prices we must make sure that the price and sales levels we set will allow our business to be profitable. We must also take note of where our product and service stands when compared with our competition. The difference between cost and value can increase profitability by us knowing the cost (the amount we spend to produce it), the price (our financial reward for providing), and the value (what our customer believes the product and service is worth to them). Pricing should be in line with the value of the benefits that our business provides for its customers, while also bearing in mind the prices our competitors charge. Therefore we will be using Value-based pricing which focuses on the price we believe customers are willing to pay, based on the benefits our business offers them. Value-based pricing depends on the strength of the benefits we can prove to our customers so by having clearly-defined benefits that give us an advantage over our competitors, we can charge according to the value we offer customers. While this approach can prove very profitable, it can alienate potential customers who are driven only by price and can also draw in new competitors but it should reach our target market. It's important to find out what our competitors offer and what they charge. It's unwise to set our prices too much higher or lower without a good reason. The perception of our product and service is also important as in many markets a high price contributes to the perception of our product as being of premium value which is what we want. 3. Identify any legal and ethical issues related to the pricing tactics. Companies...