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Today, in the global business world, price has become a crucial marketing variable. Price is highly critical particularly in the monopolistic and oligopolistic market structures where the sellers have control of this factor. In the competitive market structure where the sellers have no influence or control over the market prices, the same factor still remains a significant considerations in the choices made by the customers when shopping. Therefore, when setting the price of the new product, it is vital to consider various important procedures including determining a clear marketing objective.
It is also vital to determine the demand schedule for the new product through projection. Considering the way new product costs vary across variables such as output levels, varied promotional strategies, and marketing offers. Thus, pricing needs to be informed by market research. The setting of price for the new product should also consider the competitors’ pricing. Overall, pricing is influenced by three factors which are the new product production cost, demand, and competitors’ pricing.
Various pricing methods exist in the world of business. The pricing methods that you, Michelle, can apply include mark-up based, target return, value-based, going-rate, and sealed-bid. The choice of any of these methods must be informed by the established marketing goals, target revenues relative to the production cost, and the demand projection. The pricing methods chosen and the considerations made by the company inform the pricing strategy of a firm.
In this memo, two pricing strategies for the selected new product are considered. The strategies are skimming and penetration. The penetration strategy is a low-pricing approach that targets three business goals. Its main purpose is discouraging new entrants into the industry. Low-pricing for penetration also targets gaining an increased market share. The penetration strategy is also applied to enable room for price adjustment in the future when an opportunity arises within the market. The cell phone industry is characterized by numerous competitors with pricing being the differentiating factor for this market. Customers mostly focus on the prices of the cell phones as offered by different companies before selecting the brand from which to purchase the item. Competition is won in this market using low pricing.
On the other hand, skimming strategy involves entering the market with high prices on the new product and branding it a luxurious commodity to appeal to the high-end customers. The skimming pricing strategy is applied in the case of products which are of premium value hence customers will demand them for the purpose of prestige and ostentation. The demand for ostentation goods is always high because the buyers want to own it and identify themselves as members of the high-end social class. Thus, with skimming, the company makes super-normal profits selling to high-end people. An example is Apple Inc.’s iPhone 13 Pro Max product. It is retailing at exorbitant price across the world. Despite its expensive pricing, the demand is high by the middle-class and upper-class consumers. The goal of the firm in skimming strategy is recouping the production costs within the short-term and break-even. The strategy is also used to recover the transportation and logistical costs involved in ensuring the products reach the customers.
The choice of the distribution plan for the new product must be treated as a sensitive matter because once the selection is made, the company has to stick with it for some time. The distribution plan of a company is influenced by the other factors within the marketing mix. Particularly, distribution plan is influenced by place or location of the customer relative to the setting of the production plant. The safety level required for the new product also affects the distribution plan selected.
There are various types of distribution channels which can be used for the new product. Firstly, the company may choose online platform positioning and selling with delivery agents outsourced from the transport service sector for delivering the new product to the customers. Online selling means a company developing its online store where consumers log-in as users and to shop, choose product types and complete transactions through online payment methods like VISA Debit Cards. Secondly, distribution may be done by relying on third parties like Amazon online store, and Alibaba to link MM to the consumers in the market. It implies that customers place orders on these third-party platforms and MM is contacted to deliver the purchased items. Lastly, distribution may be done through franchising where distributors near the consumers use the MM Brand name to sell its product to the consumers.
Pricing and Distribution Choice
For MM and Michelle, the suitable pricing strategy is penetration based on low-pricing. Low-pricing is selected because it will help the company to achieve a larger market share of the budget-sensitive consumers. Low-pricing will also help the company to popularize the new brand in the short-term. The preferred distribution plan is opening own online store and selling to many customers regardless of their geographical location. In this case, logistical companies must be outsourced for deliver of the new product to buyers. The distribution plan is chosen because it will help MM to have full control over its new product revenues.