Marketing. Textbook

TOPIC 5. PRICING IN MARKETING

5.1.SITUATIONAL TASKS

1.New product and its price

Lux Ltd, which produces a fairly wide range of medical instruments both for special institutions and for sale to consumers through a network of main pharmaceutical stores and pharmacies, has a strong position in the British market and is also known abroad. Currently, a new model of digital thermometer for the general consumer is under development.

The market for household thermometers in the UK is characterized by traditional conservatism. A recent study shows that only 35 % of households have thermometers, and 75 % of these are regular glass mercury thermometers. Lux Ltd has been producing these products for decades.

Research conducted by the company confirmed these data, but supplemented them with very important information: it turned out that 90 % of households using a regular thermometer consider it unsafe for young children.

In addition, the sample survey showed that almost all respondents noted difficulties in reading information from the scale of a conventional thermometer and were unsure of the correct temperature measurement. Half of the respondents who do not own a thermometer regret that they have not yet bought one. The firm concluded that research showed a latent need for a new product. The new thermometer is made of durable, unbreakable polymer material, equipped with an easy-to-read digital display, a built-in timer with an audible signal that helps the user adjust the time of temperature measurement and know when the scale can be read. The company believes that its new model does not have all the disadvantages of a conventional thermometer.

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The next task facing the firm is to carry out market trials of the product, for which London and the south-east region of the UK have been chosen, but the development of a marketing plan is not yet completed. In addition to Lux Ltd, three other companies usually produce thermometers and other medical equipment on the British market. But they are not so well known to consumers, since they appeared on the market a year and a half ago. They sell their products through pharmacies at prices ranging from £ 7.95 to £ 11.95 [8, p. 97].

Questions:

1.Select segmentation criteria. Develop target segments and describe

them.

2.Advise the company on how to position the product.

3.Develop recommendations on pricing policy. To this end, identify external and internal factors influencing price formation in a given situation.

4.Analyze different approaches to setting the price for a new product and recommend the one most appropriate for the current situation. Suggest pricing strategies for each target segment. Take into account such aspects in pricing as the nature of demand (elasticity), psychological perception of price, and the novelty of the product.

2.Who will win the competition?

After the 1998 crisis, price became of great importance for domestic consumers of perfumes and cosmetics due to a decrease in income levels. Despite the fact that 2000–2001 were successful for Russia, sales of consumer goods increased, price still continues to play an important role in competition.

The low price of products from Russian manufacturers has allowed them to significantly change their position in the market for the better. After the financial crisis of 1998, however, Western companies, which planned not only not to reduce, but to increase their market share, began

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producing goods in Russia in order to reduce production costs and, as a result, reduce their selling price.

The impressive success of one of the foreign companies (Schwarzkopf & Henkel) in 1999 was a 3-fold increase in the market share occupied by Schauma shampoo among hair care products. Thanks to the transfer of production of this product to Russia (the production of shampoos was established at a plant in Dzerzhinsk, Nizhny Novgorod region). Schwarzkopf & Henkel managed to optimize the price of the product, which, in turn, was appreciated by Russians.

Also, in 2000, Schwarzkopf & Henkel began production of varnishes of the “Taft — Three Weathers” series in Russia. The company's partner was the Arnest plant (Stavropol). Products are produced at the production facilities of a Russian enterprise on a contract basis. The advantages are obvious: Schwarzkopf & Henkel has the ability to quickly respond to changes in demand, optimize the cost structure and invest more in the development of the brand on the Russian market. The joint project began to be developed at the end of 1999. In terms of production parameters such as the power of the lines and the modernity of the equipment, which is 30 % equipped in accordance with the requests of Schwarzkopf & Henkel, the Arnest plant surpasses many of the Western companies. The production capacity of the new lines is 10 million units per year. Schwarzkopf & Henkel plans to further expand production in Russia. In 2000, a project to locate the production of Fa brand cosmetics was at the negotiation stage. It was planned that the first batches of products would appear at the end of 2002.

Polish perfumery BS Cosmetics appeared in our country in June 2000. In three months, the distribution network covered almost the entire territory of Russia from Vladivostok to Kaliningrad (86 regional clients). Based on the results of sales by BS Cosmetics, it was decided to open the production of perfume products in Russia. At the beginning of November 2000, technological lines were launched in Vidnoye, which introduced several types of eau de toilette and perfume water to domestic buyers. Production equipment, technologies and packaging were brought from

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Poland. By the end of 2000, about 50 products, from perfumes to lotions, appeared in the assortment of the new manufacturer. In terms of price level, perfumery belongs to the “mass market” group.

Many Western companies that have not yet been able to solve the problem of producing their products in Russia have reduced their profit margins in order to maintain their market share. Thus, after August 17, 1998, the retail price for Pantene Pro-V brand products did not increase in accordance with the dollar exchange rate, but was set lower. Such a flexible pricing policy made it possible to maintain Pantene Pro-V’s share in the Russian market. The decline in prices in Russia was offset by increased sales volumes around the world.

Price competition occupies an important place in the trade of perfumes and cosmetics. Companies strive to offer consumers prices that are not only acceptable to them, but also, if possible, lower, even if only slightly, than competitors’ prices for similar products.

The technique of offering an equal, easy-to-remember price for a product is often used. So, after the Revlon company set a price of 1 USD for lipsticks, the demand for them immediately increased.

Perfume and cosmetics companies use all methods of price competition. However, priorities in the last five years have shifted from leader pricing loss, as used by, for example, Gillette, to special occasion pricing and set pricing, which is widely used by Yves Rocher and Nivea. Also, perfumery and cosmetics companies often use psychological pricing methods. As for the activities of Russian perfume and cosmetics companies, they mainly adhere to the cost-based pricing method.

Nevertheless, domestic manufacturers strive to maintain retail prices at a level that ensures the competitiveness of their products. In particular, the management of the closed joint-stock company Nevskaya Kosmetika, incorporated in 1992, managed to preserve and develop the enterprise, constantly increasing production volumes, and establishing a distribution system. The company's sales policy is to create a chain: large wholesaler — small wholesaler — retail. The company does not intend to open its own stores or departments. Instead, she is developing such a

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system of relations with distributors that, thanks to a clear pricing system and a flexible system of discounts, it becomes profitable for them to distribute Nevskaya Kosmetika products. The main achievement of the company is that all Nevskaya Kosmetika products in any Russian city cost the same, regardless of the distance that separates the local store from St. Petersburg.

In 1998, Nevskaya Kosmetika opened regional warehouses in Moscow, Yekaterinburg and Novosibirsk. In November 1999, the company created a network of consignment warehouses throughout Russia, thereby providing significant assistance to distributors [8, p. 330].

Questions:

1.What pricing policy tools do perfume and cosmetics companies use to strengthen their competitive positions in the Russian market?

2.What pricing methods do domestic and foreign perfumery and cosmetics companies use?

3.What pricing methods for perfumes and cosmetics products are preferable for domestic manufacturers? Justify your answer.

5.2.EXERCISES

1.Describe the main tasks solved using pricing policy. Give examples of similar tasks.

2.Conduct a comparative analysis of the main pricing methods. In what cases is the use of each method most justified?

3.Describe the process of developing a pricing strategy. What is the complexity of each stage of this process?

4.Develop a pricing strategy for: children's toys, Internet service provider, sunscreen.

5.In the Marker supermarket, a survey of customers was conducted about the prices of the goods offered, both in this store and in other supermarkets. Many buyers either could not give the exact price for certain products, or did not consider it necessary to take part in the survey. At the same time, an analysis of the responses received showed that the deviation

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of actual prices from the prices named by respondents is ±20 %. What conclusions can be drawn about consumers' sensitivity to price when making purchasing decisions? Where can the results be used?

6.Have you noticed that in spring prices for well-known drinks such as Coca-Cola, Fanta, and Sprite are usually reduced by 15–25 %. Nevertheless, prices for such carbonated drinks remain quite high. How can you explain this pricing policy?

7.The Pechki-Lavochki restaurant, similar to the well-known buffet, offers more than twenty different salads and cold appetizers at a fixed price. These salads and appetizers are displayed in the center of the hall on an old cart and anyone can come up and take whatever they want and how much they want onto their plate. However, he can only approach the cart once. Do you think that by implementing such a pricing policy, the PechkiLavochki restaurant has increased its profits or not? What is the reason for this restaurant's pricing policy?

5.3.CONTROL QUESTIONS

1.List the main tasks solved using the pricing policy. What are the marketing actions aimed at solving each of the problems?

2.What are the main factors that influence the final price formation process? How does this impact manifest itself?

3.Name the main groups of methods used in the pricing process. Explain the essence of each method.

4.What are the main stages involved in the process of developing and implementing a pricing strategy?

5.Explain the purpose of price as a means of organizing sales and ensuring the profitability of the enterprise.

6.What is the essence of the approach to setting the selling price depending on the elasticity of demand?

7.How can the pricing strategy change depending on the stage of the product life cycle?

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TOPIC 6. MARKETING COMMUNICATIONS

6.1.SITUATIONAL TASKS

1.How to sell a new product

One of the pizzeria workers, Al Johnson, came up with the idea of serving picnics that companies organize for their employees, as well as any events accompanied by refreshments in nature. Al's idea quickly became a reality, and within six months Al's Catering Service was thriving.

Once discussing the problems of his business with a company that produces household stoves, Al came to the conclusion that the stove could be changed in a certain way to achieve greater efficiency in its functioning. After careful consideration, Al decided to separate the food from the fire in such a way that the fat would not reach the flames. He developed a kind of partition, placing it in the upper third of the working tank. The partition allowed the flame to burn in the upper part of the container and directed the heat and smoke to the lower part, where the meat was actually cooked. The smoke came out through a hole in the bottom of the tank.

Eventually, by constantly improving his invention, Al created a mobile unit that could serve 100 people at a time. He then manufactured six such installations, which simultaneously served 600 people.

The next stage of improvement was to combine six units into one and install them on a specially designed truck. He called the installation Al's Cooker and was even able to patent it. Trying to sell the license, Al found no buyers, but soon discovered that several restaurants were illegally using his invention, and went to court. He won the case, but the restaurants did not agree to buy the license. He then decided to build a homemade Al's Cooker, which measured 14 × 36 × 20 inches. The installation cost was $ 75 with a production rate of 20 items per day. Without doubting the success of sales, Al produced 200 units and began selling them for $ 120. Only two years later he managed to sell the entire lot. Al conducted sales

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at picnics, demonstrating the unit in action. Every customer was happy with the installation, but there were no new customers. Al suspected that price might be the reason. During this time, some manufacturers of charcoal kebab grills approached Al with an offer to buy a patent. But the prices were symbolic. Nobody wanted to pay Al a reasonable percentage of each unit he sold, or a minimum annual fee. Al suspected that they just wanted to get his idea before the patent expired. In the five years since receiving the patent, Al saw no prospects for receiving money for his idea.

And then one day at his friend’s party, where Al was preparing dinner on his installation, he met a university professor. He watched the unit with interest, and Al’s story seriously interested him. Soon the professor invited the manager of Woodworks Inc., for which he was a consultant, to inquire about the new product.

As a result, consultations began with the head of the company and the production manager about the possibility of including a similar product in the company’s product range.

The company’s president was quite enthusiastic about this idea, but felt that everything needed to be explored in more detail. At his request, the professor visited Al and began negotiations with him regarding the possibility of Woodworks acquiring a license to manufacture a patented installation. But Al was suspicious of the offer, fearing that Woodworks was just another company willing to wait until the patent expired.

Gradually Al changed his mind and, at the request of the company, demonstrated his installation in the Woodworks laboratory. When negotiating the terms of the licensing agreement, Al made it clear that he would not sell the patent unless he could earn at least $ 100,000 a year. By this he also sought compensation for his costs for developing technology and creating installations, although he was ready to bargain. In addition, he planned to continue production until the royalty exceeds the current sales profit. But Woodworks management found meeting such conditions problematic.

Then the professor decided to personally start selling Al's Cooker. He brought in lawyers and a partner willing to finance the start of the

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business, and they decided to create a company that would directly sell Al's installation. Having received his consent, the partners registered a company with an authorized capital of $ 15 thousand and began their activities.

Installation description and comment

The unit is a multi-purpose cooking device. It can use both charcoal and wood. Food can be cooked directly over the coals, as well as in a special chamber with a heated air flow. Using the device, food can be smoked or fried, or both at the same time. The unit perfectly cooks meat, poultry, fish, vegetables, bakes bread and dries fruits such as apples, apricots and plums. Different foods can be cooked at the same time.

A unique spiral-shaped hot air flow provides draft in the working frying and smoking chamber of the installation. As a result, food does not burn and does not require turning. The location of the chamber with food under the flame allows you to eliminate the bursts of open flame that occur when boiling animal fat and juice.

The aroma obtained by using different types of wood enriches the quality of dishes. Hazel wood imparts its delicious aroma to any prepared product. Maple wood gives food unique flavors and aroma.

Large pieces of meat, chicken, etc. can be cooked in the oven and then frozen for long-term storage. When heated in the microwave shortly before consumption, such products retain their unique aroma. Dishes such as turkey and chicken can be served cold.

Unlike other similar gas-fired installations, this installation does not consume irreplaceable natural resources. Wood is available everywhere and its supply is renewable. In addition, it is not always necessary to burn new wood to get a wood-smoke aroma; you can also use sawdust by throwing it on the coals.

The sight of the dish being prepared in the installation, as well as the aromatic smoke, brings the user closer to nature, reminding him of the distant times of primitive life in harmony with nature. This product is not for those who profess a hasty concept of satisfying hunger. It allows the

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user to slow down and relax, and to do as our ancestors did and enjoy the process as they did [8, p. 283].

Questions:

1.Identify and characterize the target segment for direct sales of the installation. Explain why direct selling is effective for this situation.

2.Offer an attractive name for the new product.

3.Write a short ad (no more than three lines) to place in a magazine inviting you to clip and send a coupon for more information.

4.Develop a booklet to send to respondents who sent the coupon.

5.Develop a direct marketing plan to sell the installation.

2.The decision to sell directly led to a pricing problem

Workmate, Inc. sells multi-purpose woodworking tools. Initially, this product was sold in shopping centers, where the company's in-house salespeople demonstrated its operation to customers. Sales were successful, and the company decided to attract new customers through direct mail sales. The program was designed for people who showed interest in a product in shopping centers, but did not buy it there, as well as for those who sent requests in response to advertisements in print media. Direct marketing was later expanded through telemarketing.

All of the company's distribution channels worked well together, but problems arose in the pricing policy. The mall sales teams sold the product for $ 1,195 and convinced customers to “buy now” by offering a $ 100 discount if the customer made a purchase during the demo period (the teams typically spent a week in each mall before moving to a new one).

The mail-order sales team found the strategy of offering a $ 100 discount for a limited time to be effective. The prospect who responded to the email was sent a set of promotional materials along with a $ 100 off coupon valid for 60 days.

About two weeks before the coupon expired, the telephone sales team swung into action, trying to convince the prospect to make a

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