Marketing researches and strategy development on international market.

Price is one of the four core elements of the marketing mix, and is often seen as one of the most difficult ones to manage. This is because the price a company charges for its products or services will have a major impact on the bottom line revenue and profits, but pricing is also an important strategic issue, and a vital part of positioning a product in a market segment. As such, companies will need to consider how their price will affect, and be affected by, the marketing strategy; the other elements in the marketing mix; and any environmental factors. At the same time, the company will need to understand how the price will affect demand; how the fixed and variable costs will behave over time; and the ultimate strategic objectives of the company, whether they are profit maximisation, revenue maximisation, growth maximisation or some other. Only then can a pricing method and structure truly be determined.

 

Pricing[5] must first be considered as part of the marketing strategy and marketing mix. This is because the ultimate price of the product will need to be determined by its quality, and hence the price will have a key impact on the product development. In addition, the impact of price on the quantity demanded will play a key role, depending on whether the company wishes to maximise its revenue or maximise its profits. Finally, companies need to consider the competitive and regulatory environment in which it operates when thinking about price. If the company sets a price much lower than the rest of the market may trigger a price war, harming market share; but setting a price too high risks failing to attract customers from competitors with a cheaper product. In addition, regulatory guidelines may restrict price levels, usually by preventing companies from using predatory low pricing to drive competitors out of business and establish a monopoly. Finally, companies need to be careful if they want to set different prices for different customer groups, as this may be seen as discrimination, and also need to be careful not to communicate with their competitors around prices, as this may be seen as collusion.

 

Pricing strategies for new products

When introducing a new product, a company will generally aim to either maximise its profit or maximise its market share. This implies that a company should either pursue a price strategy based on skimming or penetration.

 

Skimming[6] occurs when companies set a high price in an attempt to attract, or ‘skim’ the most valuable customers: the ‘cream’ of the market. Such a strategy targets the most affluent customers in the market who sit at the very top of the demand curve and are not very sensitive to price. Skimming is generally does when a company has developed a unique product and expects demand to be relatively inelastic. As such, customers will not be highly price sensitive, and the company can thus still sell a significant volume of products at high prices. It is also appropriate when a company does not expect significant economic of scale in the short term, and hence would not benefit from increasing the volume sold, or when the company simply does not have the capital and resources to produce a large volume of products.

 

Penetration pricing is effectively the opposite of skimming, and involves a company setting a low price and hence attempting to obtain the maximum share of the market possible. This is usually done when a company expects demand to be very elastic, and hence setting a low price will vastly increase revenue. In addition, a firm may use penetration pricing if it expects large economies of scale, or if it is worried about competitors entering the market and wants to maximise its first mover entry. It can also be used when a company expects to make more profits from sales of complementary goods. As such, skim pricing is most often used by companies with a unique and technologically sophisticated product, such as the Apple iPhone, whilst penetration pricing is often used by companies entering a generic market with high economies of scale, significant levels of competition, such as Sony with the PS3. When Sony launched the PS3, it set the price very low, hence obtaining a large market share. This not only reduced levels of demand for competing consoles, but it also gave Sony a large market to sell games to, and also to build support for its Blu-Ray DVD format.

 

As demonstrated above, in addition to setting the pricing strategy, marketing managers can also develop innovative new pricing models to add value to the company and its customers. This can involve selling the core product cheaply, and then allowing customers to choose additional complementary goods to go with it. In addition, many companies have begun to move from a one off payment model for certain services and towards a subscription based model. This can be seen in the case of antivirus software, where companies now offer their product for a certain fee, with later updates provided on a subscription basis. As such, whilst the consumer can obtain a basic product for a lower fee, they need to continue paying an annual subscription in order to keep the product up to date and effective against new viruses. This helps the company maintain steady revenues, and also allows the customer to spread the cost of the program. In addition, many devices can now be customised with software after purchase. For example, mobile phones traditionally came with a set of programs loaded, but the Apple iPhone allows users to select their own programs. This means that customers do not pay for any programs on the phone they will not use, but instead can select and pay for programs as an when they want to use them.

 

Another important aspect of pricing is discounting, which is an effective method for companies to price discriminate to different markets. The company sets a recommended price, or a list price, for its product, and then discounts this price depending on the distribution channel used and the end users served. For example, customers who purchase a large volume of goods often receive a quantity discount to reflect the lower transaction cost per unit to the company. In addition, companies often offer seasonal discounts in times of low sales, for example after Cristmas when many people have already bought presents and will not have as much money available. Discounts can also be offered for early payment of bills for major goods, trade discounts can be offered to important members of a distribution channel, and short term promotional discounts can be offered to stimulate sales if the company needs to raise cash quickly.

Product life cycle

Every product has its life. Industrial goods may have a longer life than consumer goods. When a product idea is commercialised, the product enters into the market and competes with the rivals, for making sales and earning profits. Products, like human beings, have length of life. This has been described as life-cycle in human beings and when applied to products, it is product market life-cycle, because it is related to particular market. For instance, an old product in the market of Mumbai, may have a new life in a remote village. The product life-cycle may be short for some products and long for some other products. The period may differ from product to product. Every product passes through certain stages, collectively known as product life-cycle stages. These stages include:

Introduction

- Growth

- Maturity

- Decline

The concept of product life-cycle highlights that sooner or later all products die and that if management wishes to sustain its revenues, it must replace the declining products with the new ones. The product life-cycle concept indicates as to what can be expected in the market for a new product at various stages. i.e., introduction, growth, maturity and decline. Thus, the concept of product life-cycle can be used as a forecasting tool. It can alert management that its product will inevitably face saturation and decline, and the host of problems these stages pose. The product life-cycle is also a useful framework for describing the typical evolution of marketing strategy over the stages of product life-cycle. This will help in taking sound marketing decisions at different stages of the product life-cycle.

After a product has been developed, it is launched in the market with the help of various promotional devices such as advertising, sales promotion, publicity and paresonal selling. In other words, product development must be followed by the successful introduction of the product in the market. For this, planning for introduction of the product starts during the process of product development itself. Every firm makes sale projections during introduction, growth and maturity stage of the product life-cycle. To acheive the projected sales target, it formulates promotional, pricing and distribution policies. Thus, the concept of product life-cycle facilitates integrated marketing policies relating to product, price, place and promotion/distribution.

 

The advantages of PLC to a firm are as follows:[7]

When the product life-cycle is predictable, the management must be cautious in taking advance steps before the decline stage, by adopting product modification, pricing strategies, style, quality, change, etc.

The firm can prepare an effective product plan by knowing the product life-cycle of a product.

The management can find new uses of the product for the expansion of market during growth stage and for extending the maturity stage.

Management can adopt latest technological changes to improve the product quality, features and design.

 

Stages in product life cycle.

A new product passes through set of stages known as product life cycle. Product life cycle applies to both brand and category of products. Its time period vary from product to product. Modern product life cycles are becoming shorter and shorter as products in mature stages are being renewed by market segmentation and product differentiation.

Companies always attempt to maximize the profit and revenues over the entire life cycle of a product. In order to achieving the desired level of profit, the introduction of the new product at the proper time is crucial. If new product is appealing to consumer and no stiff competition is out there, company can charge high prices and earn high profits.

 

Product life cycle comprises four stages:

-Introduction stage

-Growth stage

-Maturity stage

- Decline stage

 

Introduction stage

Product is introduced in the market with intention to build a clear identity and heavy promotion is done for maximum awareness. Before actual offering of the product to customers, product passes through product development, involves prototype and market tests. Companies incur more costs in this phase and also bear additional cost for distribution. On the other hand, there are a few customers at this stage, means low sales volume. So, during introductory stage company's profits shows a negative figure because of huge cost but low sales volume.

At introduction stage, the company core focus is on establishing a market and arising demand for the product. So, the impact on marketing mix is as follows:

 

Product

Branding, Quality level and intellectual property and protections are obtained to stimulate consumers for the entire product category. Product is under more consideration, as first impression is the last impression.

 

Price

High(skim) pricing is used for making high profits with intention to cover initial cost in a short period and low pricing is used to penetrate and gain the market share. company choice of pricing strategy depends on their goals.

 

Place

Distribution at this stage is usually selective and scattered.

 

Promotion

At introductory stage, promotion is done with intention to build brand awareness. Samples/trials are provided that is fruitful in attracting early adopters and potential customers. Promotional programs are more essential in this phase. It is as much important as to produce the product because it positions the product.

 

Growth Stage

In this stage, company's sales and profits starts increasing and competition also begin to increase. The product becomes well recognized at this stage and some of the buyers repeat the purchase patterns. During this stage, firms focus on brand preference and gaining market share. It is market acceptance stage. But due to competition, company invest more in advertisement to convince customers so profits may decline near the end of growth stage.

 

Affect on 4 P's of marketing is as under:

 

Product

Along with maintaining the existing quality, new features and improvements in product quality may be done. All this is done to compete and maintain the market share.

 

Price

Price is maintained or may increase as company gets high demand at low competition or it may be reduced to grasp more customers.

 

Distribution

Distribution becomes more significant with the increase demand and acceptability of product. More channels are added for intensive distribution in order to meet increasing demand. On the other hand resellers start getting interested in the product, so trade discounts are also minimal.

 

Promotion

At growth stage, promotion is increased. When acceptability of product increases, more efforts are made for brand preference and loyalty.

 

Maturity stage

At maturity stage, brand awareness is strong so sale continues to grow but at a declining rate as compared to past. At this stage, there are more competitors with the same products. So, companies defend the market share and extending product life cycle, rather than making the profits, By offering sales promotions to encourage retailer to give more shelf space to the product than that of competitors. At this stage usually loyal customers make purchases.