Pricing and Channels (Essay Sample)

Pricing and Channels
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Abstract
The ability to determine the perfect price of a given product is one of the most essential marketing tasks that marketing managers have to confront. Setting of pricing schemes is fundamentally vital to the fulfillment of the businesses’ goals and objectives. It is plausible that prices have a big impact on customers’ purchasing decisions, and assist in determining a company’s revenues. When deciding on the most appropriate pricing techniques, marketing managers have to possess some necessary skills that influence their decision making ability. One of the most important things to remember is that the preferred pricing method must allow the company to recover its costs and generate profits. The method chosen must also be consistent with the company’s marketing objectives. It is notable that different strategies are effective, for instance, for enhancing the market share as compared to those that boost the company’s profits. The most important criteria that justify any chosen pricing technique are its ability to provide the company with a competitive advantage over its main rivals in the market. This paper aims at unraveling the impacts of different pricing schemes used in the beauty and skin products industry with special emphasis on Fairways Skin Products Company. The paper starts by analyzing the major pricing schemes that are used by Fairways major competitors, Nivea and Vaseline. The paper then compares the major pricing strategies that Fairways applies in marketing its major products. Finally, the paper conducts a research on the major channel systems and illustrates how a chosen channel system can be applied to enhancing customer value at Fairways.
Research the pricing schemes of the 2 competitors
Pricing schemes refer to the general approaches to pricing products that marketing managers can apply to boost the profits for their companies. The major pricing techniques that are used by Nivea and Vaseline include the cost-based and competitor-based pricing methods.
Market based
Based on the market-based scheme, the price for a given product is determined by the forces of supply and demand. These pricing schemes determine the price for the product on the basis of the prevailing market forces of supply and demand. For example, when the demand for products is high, the company charges high prices for its products. On the other hand, when customers demonstrate a strong willingness to purchase a product, the company opts to charge low prices for the product in order to stimulate demand. The market-based pricing scheme is very effective because of its relative versatility. The scheme is customer-oriented, and it aims to be sensitive on the customers’ shopping decisions. Thus, different prices can be applied for different target markets. In this way, the company gets an opportunity to fulfill the desires of various segments of its customers while at the same generating substantial profits. The scheme allows Nivea to tailor its product prices in line with changing market conditions as well as determine prices according to the stage that a product may be in its lifecycle. The market-based pricing scheme sometimes tends to be controversial to marketing managers due to its emphasis on price discrimination. The discrimination occurs in cases where the same product is offered to different clients at varying prices. Therefore, businesses tend to take advantage of the fact that different market segments are ready to part with different amounts of money for the same product. Nivea has been able to boost its sales for the Nivea for Men lotion, especially after its launch in the United Kingdom. The prices for the product were greatly extrapolated as soon as the management realized that the product was in high demand (Ingenbleek, Debruyne, Frambach and Verhallen 2008).
Cost based
Under the cost-based pricing scheme, the price for the products is based on the costs incurred in developing the product as well as a mark-up on such costs. The cost-based scheme places a lot of attention on the costs to the process of making the product, with an added mark-up in order to gain some profits. The simplest pricing strategy on the basis of this scheme is the ‘cost-plus’ strategy, in which the company determines the mean total cost of producing each unit of a particular product. Both Nivea and Vaseline had been this pricing scheme for a long time, especially before the pricing competition started to be based on other factors such as demand and supply. In both companies, the management determines the cost of making the skin products and adds up an extra 40% and 45% profit margin for Nivea and Vaseline respectively.
Competition based
The competitive-based pricing scheme is determined with reference to the prices that other competitors have set for the same products. Under the scheme, a company may decide to offer its products for similar prices as those of its competitors. Alternatively, the company may decide to charge higher or lower depending on many factors. Within the competition-based pricing scheme, the domineering player in the market usually becomes the ‘price leader’ with other players following suit. The 2009-2010 price wars between Nivea and Vaseline reflect a good example to the competition-based pricing scheme. The scheme is usually justified because price is a fundamental purchase criterion for many customers. In as much as companies tend to attract customers by offering better quality products than their rivals, the management always keep in mind the fact that most, if not all, customers use price as the definitive criterion when shopping for their products.
Compare and contrast 3 pricing strategies for the product
Pricing strategies refer to the various pricing techniques that marketing managers can employ to achieve their company’s objectives such as high market share and accelerated profits. The most popular pricing strategies that are employed, especially in the skin products market include the following:
Skimming
The strategy encompasses charging high prices in an attempt to reap the maximum amount of profits on the basis of the prevailing market environment. The strategy is mainly applied in two major situations; Firstly, the strategy is very popular for products that are still in the introductory stage of their lifecycle. Charging of relatively high prices early on offers the company a precise opportunity to recover substantial costs incurred during product development. The strategy takes advantage of the market segment usually referred to as ‘early adopters.’ These are the customers who are ready and willing to spend a little bit higher in order to own a particular product. When Nivea rebranded its Nivea for Men in the United Kingdom, there was a surge in sales as most men wanted to have a portion of this unique product which had ostensibly been made for men only. Even women were not left behind as they wanted to purchase a special and unique gift to their male partners. As a result, the company hiked its prices resulting in immense profits. Vaseline has also been applying the skimming strategy anytime that the company launches new products.
Penetration pricing
The strategy involves a company charging relatively low prices for its products as compared to its competitors. The strategy is mainly applied when a company is entering into a new market. Therefore, the major use of the strategy is to enable a company penetrate a market easily and curve its own market niche. It is plausible that the penetration strategy is directly opposite to the skimming strategy. While the latter charges high prices upon introducing a new product, the former involves charging low prices when entering into a new market.
Loss leaders
The strategy involves offering a product at a price below the actual cost price in a bid to attract customers. Managers who employ the strategy usually hope that the customers will be persuaded to purchase other full-priced products that the company offers. The strategy is often geared towards targeting customer behavioral trends and motivations. Companies mainly apply the strategy as part of their sales promotion strategies. Even though the strategy has the potential to attract customers in a similar way to the other strategies outlined above, it remains very risky for businesses since a company cannot be able to sustain such a strategy for too long. Furthermore, the strategy is not guaranteed to raise enough revenues from the sale of the company’s other products. Additionally, the strategy poses the risk of tarnishing the image of the product discounted since customers tend to relate price with quality (McCaskey & Brady 2007).
Select the appropriate pricing plan for the next year, which may be comprised of different strategies
During the next financial year, Fairways can implement a pricing plan that involves a hybrid of the many pricing strategies used by Nivea and Vaseline. For example, the company can introduce a skin care product that comes with added health benefits. The added benefits will allow the company to market a product both as a favorable skin product and as a recommended solution for skin health problems. The company can seek the accreditation from a recognized health professional or medical board to endorse the product and recommend it as a vital skin care product. Upon the reception of the product in the market, the company can offer the product at a relatively high price with a justification that the product has a combination of solutions to many skin problems. Given that the product will have the experts’ recommendation, one can expect the company to get orders from healthcare institutions and the company can then reap substantial profits fro...