BPMM6013 MARKETING MANAGEMENT

1. TABLE OF CONTENTS
NUM. CONTENTS PAGE
1. TABLE OF CONTENTS 1
2.
MARKETING DEBATE
QUESTION
2
3.
OVERVIEW OF THE
CONCEPT/TOPIC
3
4.
APPLICATIONS OF THE
CONCEPTS
5.
CRITICS OF THE CONCEPTS
6.
LOCAL CASES AS EAMPLES
!.
CONCLUSION
". REFERENCES
#. ATTACHMENTS
2. MARKETING DEBATE$
IS THE RIGHT PRICE IS A FAIR PRICE%
1
BPMM6013 MARKETING MANAGEMENT
Prices are often set to satisfy demand or to reflect the remi!m that cons!mers are "illin# to
ay for a rod!ct or ser$ice% &or internal analytical !roses' this may (e set on a cost l!s
(asis incororatin# the costs in$ol$ed to ma)e a rod!ct or ser$ice% *ome critics sh!dder'
ho"e$er' at the tho!#ht of +, (ottles of "ater' +1-0 r!nnin# shoes' and +-00 concert tic)ets%
T&'( & )*+,-,*.$ Price sho!ld reflect the $al!e that cons!mers are "illin# to ay $ers!s
rices sho!ld rimarily .!st reflect the cost in$ol$ed in ma)in# a rod!ct or ser$ice%
M&/'(-,.0 D,+12++,*.
Thin) of the $ario!s methods / mar)! ricin#' tar#et0ret!rn ricin#' ercei$ed0$al!e
ricin#' $al!e ricin# #oin#0rate ricin# and a!ction0tye ricin#% As a cons!mer' "hich
method do yo! ersonally refer to deal "ith1 2hy1 If the a$era#e rice "ere to stay the
same' "hich "o!ld yo! refer3 14 for firms to set one rice and not de$iate or ,4 to emloy
sli#htly hi#her rices most of the year' (!t sli#htly lo"er disco!nted rices or secials for
certain occasions1
3. OVERVIEW OF THE CONCEPT/TOPIC
&irst of all' "e sho!ld !nderstand the meanin# of &air Price and Ri#ht Price% &air rice refers
to the com(ination of assessment and associated emotions of cons!mers "hich concl!de that
the seller5s comarati$e offer is reasona(le' acceta(le and .!stifia(le 67ia et% al%' ,0084%
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BPMM6013 MARKETING MANAGEMENT
Belo" is the definition of &air Price from 2e( 9efinition30
:In acco!ntin# and economics' fair $al!e is a rational and !n(iased estimate of the otential
mar)et rice of a #ood' ser$ice or asset%5
*!tter and ;ardesty 6,00-4 reorted than the ercetion of !nfairness in ricin# "ill lead to
c!stomers dissatisfaction that "ill f!rther .eoardi<e the seller5s re!tation% Percei$ed rice
fairness emhasi<e on ho" reso!rces and re"ards are distri(!ted "hich in$ol$ed an e=chan#e
of relationshi (et"een (!yer and seller 6>o=' ,0014% ;o"e$er a ercei$ed fair rice (y
c!stomers may or may not (e the ri#ht for sellers "hich ha$e different ricin# method%
9efinition of Ri#ht Price30
2hen yo! are #ettin# e=actly the ri#ht ot odds on the money yo! ha$e !t in the ot or
e=actly the ri#ht odds on the money yo! may ha$e to in$est%
9efinition of &air ?al!e' "hich relates "ith the fair rice30
In acco!ntin# and economics' 3&,/ 4&52( is a rational and !n(iased estimate of the otential
mar)et rice of a #ood' ser$ice' or asset% It ta)es into acco!nt s!ch o(.ecti$e factors as3
ac@!isitionArod!ctionAdistri(!tion costs' relacement costs' or costs of close
s!(stit!tes
act!al !tility at a #i$en le$el of de$eloment of social rod!cti$e caa(ility
s!ly $s% demand and
s!(.ecti$e factors s!ch as
ris) characteristics
cost of and ret!rn on caital
indi$id!ally ercei$ed !tility
A firm m!st set a rice for the first time "hen it de$elos a ne" rod!ct' "hen it introd!ces
its re#!lar rod!ct into a ne" distri(!tion channel or #eo#rahical area and "hen it enters
(ids on ne" contract "or)%
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BPMM6013 MARKETING MANAGEMENT
There are three ma.or considerations in rice settin#3
a4 >osts set a floor to the rice
(4 >ometitors5 rices and the rice of s!(stit!tes ro$ide an orientin# oint%
c4 >!stomers5 assessment of !ni@!e feat!res esta(lishes the rice ceilin#%
&irms select a ricin# method that incl!des one or more of these three considerations% There
are si= rice0settin# methods3
16 M&/'2) )/,1,.0
0 Mar)! ricin# is calc!latin# all the costs associated "ith a rod!ct and then
determinin# a mar)! ercenta#e to co$er the costs and e=ected rofits%
0 The most elementary ricin# method is to add a standard 7&/'2) to the rod!ct5s
cost%
0 &or e=amles' constr!ction comanies s!(mit .o( (ids (y estimatin# the total
ro.ect cost and addin# a standard mar)! for rofits% And also la"yers and
acco!ntants tyically rice (y addin# a standard mar)! on their time and costs%
0 It does not ta)e into acco!nt the rice c!stomers are "illin# to ay%
0 2hat is the si#nificance of mar) !1 The amo!nt of mar)! allo"ed to the
retailer determines the money he ma)es from sellin# e$ery !nit of the rod!ct%
;i#her the mar)!' #reater the cost to the cons!mer' and #reater the money the
retailer ma)es%
0 Bo" mar#ins means a retailer ma)es less money on e$ery !nit' (!t the n!m(er of
!nits sold is $ery hi#h% *o o$erall' the amo!nt of money made e$ens o!t%
0 May create a certain hyeAe=citement for c!stomers "hen they o(tain disco!nt
from comanies "hich ass!mes that the mar)! rice as a (!ffer for disco!nt%
26 T&/0(-8/(-2/. )/,1,.0
0 The rocess of settin# an item5s rice (y !sin# an e@!ation to com!te the rice
that "ill res!lt in a certain le$el of lanned rofit #i$en the sale of a secified
amo!nt of items%
4
BPMM6013 MARKETING MANAGEMENT
0 In -&/0(-8/(-2/. )/,1,.0' the firm determines the rice that "o!ld yield its tar#et
rate of ret!rn on in$estment 6RCI4%
0 Tar#et ricin# is !sed (y General Motors' "hich rices its a!tomo(iles to achie$e
a 1-0,0 ercent RCI% This method also !sed (y !(lic !tilities' "hich need to
ma)e a fair ret!rn on in$estment%
0 This method !s!ally i#nores rice elasticity and cometitors5 rices
0 This method is a!#mented (y findin# "ays to red!ce o$erhead and $aria(le costs%
0 By !sin# the method' a (!siness is a(le to set its rod!cts5 rices at s!ch le$els
that its cororate rofit o(.ecti$es are li)ely to (e met if sales contin!e to r!n at or
a(o$e the amo!nt secified%
0 Tar#et ret!rn ricin# !ts a lot of ress!re to rod!cers "hich e=eriencin# hi#her
material costin# and risin# cost of rod!ction% To achie$e ones tar#et ret!rn'
comanies my increase sellin# rice "hich the rod!ct may fall o!t of fa$or%% Cn
the other hand comanies may choose to so!rce for cheaer ra" materials "hich
"ill affect the rod!ct @!ality in the lon# r!n%
36 P(/1(,4(984&52( )/,1,.0
0 Percei$ed0$al!e ricin# is the $al!ation of #oods or ser$ices accordin# to ho"
m!ch cons!mers are "illin# to ay for it' rather than !on its rod!ction and
deli$ery costs% Dsin# a ercei$ed $al!e ricin# techni@!e mi#ht (e ar(itrary' (!t it
can #reatly assist in the effecti$e mar)etin# of a rod!ct since it sets rod!ct
ricin# in line "ith its ercei$ed $al!e (y otential (!yers%
0 An increasin# n!m(er of firms' (ase their rice on the c!stomer5s )(/1(,4(9
4&52(%
0 Percei$ed $al!e comrises se$eral elements' s!ch as the (!yer5s ima#e of the
rod!ct erformance' the channel deli$era(les' the "arranty @!ality' c!stomer
s!ort and softer attri(!tes s!ch as the s!lier5s re!tation' tr!st"orthiness and
esteem% To determine the $al!e offerin#' firms rely on mana#erial .!d#ments'
s!r$eys' similarly ositioned rod!cts' e=erimentation' historical data' foc!s
#ro!s and con.oint analysis%
0 &irms m!st deli$er the $al!e romised (y their $al!e roosition and the c!stomer
m!st ercei$e this $al!e%
0 >aterillar !ses ercei$ed $al!e to set rices on its constr!ction e@!iment%
5
BPMM6013 MARKETING MANAGEMENT
0 It is often e=ressed as the e@!ation3 V&52( : B(.(3,-+ / C*+-
0 The c!stomers #et (enefits and ass!me costs% ?al!e is th!s s!(.ecti$e 6i%e%' a
f!nction of cons!mersE estimation4 and relational 6i%e%' (oth (enefits and cost m!st
(e ositi$e $al!es4%
46 V&52( )/,1,.0
0 ?al!e ricin# is !sed "hen rices are (ased on the $al!e of a rod!ct as ercei$ed
from the c!stomerEs ersecti$e% The ercei$ed $al!e determines the c!stomerEs
"illin#ness to ay and th!s the ma=im!m rice a comany can char#e for its
rod!ct%
0 In recent years' se$eral firms ha$e adoted 4&52( )/,1,.03 they "in loyal
c!stomers (y char#in# a fairly lo" rice for a hi#h0@!ality offerin#%
0 A comany that sells (asic' "hite' 100F cotton athletic soc)s "o!ld ro(a(ly !se
cost0l!s ricin#' (eca!se its rod!ct does not ha$e any secial feat!res%
;o"e$er' a comany that sold s"eat0"ic)in#' e=tra0added athletic soc)s co!ld
!se $al!e0(ased ricin# and sell its soc)s at a hi#her rice' (eca!se it ro$ides
somethin# !ni@!e and $al!a(le to athletic cons!mers%
0 This entails the redesi#nin# of the firms5 oerations to rod!ce hi#h @!ality for
less%
0 An imortant tye of $al!e ricin# is E4(/;9&; L*< P/,1,.0 =EDLP6 is the
constant char#in# of a lo" rice "ith fe" romotions
0 ;i#h0lo" ricin# is the char#in# of hi#h rices "ith fre@!ent romotions offerin#
rices lo"er than the E9BP le$els%
0 >ertain hyermar)et i%e% Giant camai#nin# a(o!t rice comarison "ith a
camai#n ta#line s!ch as GIf yo! can find the same item' at lo"er rice' money
(ac) #!aranteeH%
0 Amon# the ractitioners of $al!e ricin# are IKEA and lo"0cost carriers s!ch as
AirAsia%
56 G*,.08/&-( )/,1,.0
0 In 0*,.08/&-( )/,1,.0' the firm (ases its rice lar#ely on cometitors5 rices% The
firm mi#ht char#e the same' more' or less than ma.or cometitors%
6
BPMM6013 MARKETING MANAGEMENT
0 This is re$alent in oli#oolistic ind!stries that sell a commodity s!ch as steel'
aer or fertili<er firms normally char#e the same rice%
0 Goin# rate ricin# is most li)ely to occ!r "here3
there is a de#ree of rice leadershi ta)in# lace "ithin a artic!lar mar)et
(!sinesses are rel!ctant to set si#nificantly different rices (eca!se of the ris)
of settin# off a )/,1( <&/' "hich "o!ld red!ce rofits to all firms
there is a de#ree of coll!sion ta)in# lace (et"een firms
0 If there is one rice leader and firms are tendin# to follo" the rices set (y the
rice leader' then they "ill often feel fr!strated that they are not a(le to mar)
themsel$es o!t (y red!cin# their rices% To comensate for this' they may try'
thro!#h their mar)etin# strate#y' to esta(lish a stron# (rand identity% This "ill
ena(le them to differentiate themsel$es from the cometition%
66 A21-,*.8-;)( )/,1,.0
0 This method ricin# is #ro"in# more o!lar' esecially "ith the #ro"th of the
internet%
0 A lar#e n!m(er of electronic mar)et laces are sellin# a di$erse ran#e of rod!cts
and ser$ices (y a!ctionin# them tho!#h (iddin# rocess% Cne ma.or !se of a!ction
is to disose e=cess in$entories%
0 There are three ma.or tyes of a!ctions3
&6 E.05,+> &21-,*.+ =&+1(.9,.0 ?,9+6
o ;a$e one seller and many (!yers% Cn sites s!ch as IahooJ and eBay' the
seller !ts ! an item and (idders raise the offer rice !ntil the to rice is
reached% This a!ction (ein# !sed today for sellin# anti@!es' cattle' real
estates and !sed e@!iment and $ehicle%
o Dse ascendin# (ids to determine the hi#hest "illin# seller%
?6 D2-1> &21-,*.+ =9(+1(.9,.0 ?,9+6
o &eat!re one seller and many (!yers or one (!yer and many sellers%
o In the first )ind' an a!ctioneer anno!nces a hi#h rice for a rod!ct and
then slo"ly decreases the rice !ntil a (idder accets the rice%
o In the other hand' the (!yer anno!nces somethin# that he or she "ants to
(!y and then otential sellers comete to #et the sale (y offerin# the
7
BPMM6013 MARKETING MANAGEMENT
lo"est rice% Each seller sees "hat the last (id is and decides "hether to
#o lo"er%
o Dse descendin# to determine the lo"est "illin# seller%
16 S(&5(98?,9 &21-,*.+
o Bet "o!ld0(e s!liers s!(mit only one (idK they cannot )no" the other
(ids%
o A s!lier "ill not (id (elo" its cost (!t cannot (id too hi#h for fear of
losin# the .o(% The net effect of these t"o !lls can (e descri(ed in terms
of the (id5s e=ected rofit%
o This is !sed fre@!ently in #o$ernment ro.ects%
4. APPLICATIONS OF THE CONCEPTS
Cne "orld hoe that "hen yo! !rchase somethin# for a fair rice' it "ill (e also (e the ri#ht
rice' (!t sometimes there are many factors that are in$ol$ed in the ricin# and costs of an
item% A man!fact!rer needs to ma)e eno!#h rofit to not only ma)e his rod!ction
"orth"hile (!t also to allo" a small amo!nt of c!shion to e=and his (!siness% 2hat yo!
8
BPMM6013 MARKETING MANAGEMENT
may ercei$e as fair' may not (e in )eein# "ith "hat the seller has in mind' it5s (est to
ne#otiate and see "hat yo! can (oth (e hay "ith%
As a cons!mer' "e ersonally refer to deal "ith ?al!e Pricin# method% 2e choose $al!e
ricin# (eca!se3
14 The firms "in their loyal c!stomers (y char#in# a fairly lo" rice for a hi#h0@!ality
offerin#%
,4 E$eryday Bo" Pricin# 6E9BP4 olicy char#es a constant lo" / rice "ith little or no
rice romotions and secial sales%
34 &eel that "e are #ettin# a #ood deal% This means that the $al!e0riced (rand m!st
offer feat!res and (enefits that .!stify the rice (eyond its comonents% This
e=ectation forms an !nso)en contract of tr!st (et"een the cons!mer and the (rand%
If (ro)en' this contract may (e irreara(le%
84 >!stomer loyalty% 2e can achie$e e=tremely hi#h c!stomer loyalty for reeat
(!siness and referrals' (!t only if the ser$ice or rod!ct ro$ided .!stifies the hi#h
rice% This ad$anta#e tends to also deri$e from the nat!re of the sales relationshi'
"hich needs to (e (oth close and tr!stin# (efore $al!e (ased ricin# can e$en (e
contemlated%
-4 By researchin# the mar)et and !nderstandin# the $al!e that c!stomers lace on
certain rod!cts' "e are a(le to otimise the sales and rofit mar#ins% Better still'
$al!e (ased ricin# is easy to imlement once the c!stomer research is comleted as
this strate#y relies more on information a(o!t c!stomer (!yin# ha(its and
e=ectations rather than comlicated mathematical form!las%
64 Behind $al!e0ricin# strate#ies there are a fe" imortant concets3
>!stomers are $al!e conscio!s rather than rice conscio!s e%#% some c!stomers "ill
ay e=tra for romt deli$ery%
>!stomers assi#n a ersonal $al!e to a rod!ct or ser$ice e%#% a teena#er is "illin# to
ay a remi!m rice for a concert erformed (y his idol%
The sellin# rice is (ased on c!stomers5 ercei$ed $al!e rather than on the $endor5s
costs e%#% an e0(oo) cost less to rod!ce than a aer(ac) (!t readers "ill ay more
for it (eca!se of the $al!e laced on format and instant deli$ery%
9
BPMM6013 MARKETING MANAGEMENT
As a ro$ed that this E9BP "as s!cceed' "e #a$e fo!r s!ccessf!l D* Retailers s!ch are
;ome 9eot' 2al0Mart' Cffice 9eot and Toys :R5 Ds "ho are adoted E9BP% At the
same time' "e fo!nd three ad$anta#es of E9BP30
6i4 Ass!res >!stomers of Bo" Prices
Many c!stomers are scetical a(o!t initial retail rices% They ha$e (ecome
conditioned to (!yin# only a sale% E9BP strate#y lets c!stomers )no" that they
"ill #et the same lo" rices e$ery time they atroni<e the E9BP retailers%
>!stomers don5t ha$e to read the ads and "ait for items they "ant to #o on sale%
6ii4 Red!ces Ad$ertisin# and Ceratin# E=enses
The sta(le rices ca!sed (y E9BP limit the need for the "ee)ly sale ad$ertisin#
!sed in the hi#hAlo" strate#y% In addition' E9BP retailers do not ha$e to inc!r the
la(or costs of chan#in# rice ta#s and si#ns and !ttin# ! sales si#ns%
6iii4 Red!ces *toc) o!ts and Imro$es In$entory Mana#ement
The E9BP aroach red!ces the lar#e $ariations in demand ca!sed (y fre@!ent
sales "ith lar#e mar)do"ns% As a res!lt' retailers can mana#e their in$entories
"ith more certainty% &e"er stoc) o!ts mean more satisfied c!stomers' hi#h sales'
and fe"er rain chec)s%
T>( @2(+-,*. >(/(A ,3 ->( &4(/&0( )/,1( <(/( -* +-&; ->( +&7(A <>,1> <*259 ;*2 )/(3(/.
16 F*/ 3,/7+ -* +(- *.( )/,1( &.9 .*- 9(4,&-( */ 26 T* (7)5*; +5,0>-5; >,0>(/ )/,1(+ 7*+-
*3 ->( ;(&/A ?2- +5,0>-5; 5*<(/ 9,+1*2.-(9 )/,1(+ */ +)(1,&5+ 3*/ 1(/-&,. *11&+,*.+%
S*A *2/ &.+<(/ ->&- ,f the a$era#e rice "ere to stay the same' "e "ill refer t* (7)5*;
+5,0>-5; >,0>(/ )/,1(+ 7*+- *3 ->( ;(&/A ?2- +5,0>-5; 5*<(/ 9,+1*2.-(9 )/,1(+ */ +)(1,&5+
3*/ 1(/-&,. *11&+,*.+. U+2&55;A <( 1&. +(( ->&- the method of ricin# "here the #oods or
ser$ices offered are re#!larly riced hi#her than cometitors' (!t thro!#h romotions'
ad$ertisements' and or co!ons' lo"er rices are offered on )ey items cons!mers "o!ld "ant
to !rchase% The lo"er romotional rices are desi#ned to (rin# c!stomers to the
or#ani<ationA(rand "here the c!stomer is offered the romotional rod!ct as "ell as the
re#!lar hi#her riced rod!cts% The lo"er rice soon seems li)e a (ar#ain to cons!mers%
10
BPMM6013 MARKETING MANAGEMENT
There are many (i# firms !sin# this tye of ricin# strate#y 6e=3 Ree(o)' Ni)e' Adidas4% The
"ay cometition re$ails in the shoe ind!stry is thro!#h hi#h0lo" rice% Also hi#h0lo"
ricin# is e=tensi$ely !sed in the fashion ind!stry (y comanies 6e=3 MacyEs 4% This ricin#
strate#y is not only in the shoe and fashion ind!stry (!t also in many other ind!stries%
;o"e$er' in these ind!stries one or t"o firms "ill not ro$ide disco!nts and "or)s on fi=ed
rate of earnin#s%
A hi#hAlo" strate#y also has certain stren#ths' some of "hich are as (elo"3
>an tar#et many c!stomer se#ments
Merchandise mo$es
Ma=im!m emhasis on @!ality
It is hard to maintain E9BP
*ell merchandise% *ales allo" retailers to #et rid of slo"0sellin# merchandise%
Increase rofit thro!#h rice discrimination% ;i#hAlo" ricin# allo"s retailers to
char#e hi#her rices to c!stomers "ho are not rice sensiti$e and are "illin# to ay
the :hi#h5 rice and lo"er rices to rice sensiti$e c!stomers "ho "ill "ait for
the5lo"5 sale rice%
*ales create e=citement% A :#et them "hile they last5 atmoshere often occ!rs d!rin#
a sale% *ales dra" a lot of c!stomers' and a lot of c!stomers create e=citement% *ome
retailers a!#ment lo" rices and ad$ertisin# "ith secial in0store acti$ities li)e
rod!ct demonstrations' #i$ea"ays' and cele(rity aearances%
Promotional' #eo#rahical and sycholo#ical ricin# are additional ricin# strate#ies%
Promotional ricin# is temorary ricin# !sed to romote a certain rod!ct% Bar#ely affected
(y distri(!tion and shiin# costs' #eo#rahical ricin# is "hen rod!cts are riced (ased on
their location% Psycholo#ical ricin# #ets the cons!mer to resond on an emotional le$el
instead of rationally%
11
BPMM6013 MARKETING MANAGEMENT
Retailers' li)e Macy5s' that !se ;i#h Bo" ricin# offer hi#her e$eryday rices relati$e to
E9BP retailers% The GBo"H in ;i#h0Bo" comes from the concet that these retailers r!n
fre@!ent romotions that hea$ily disco!nt some rod!cts% Bess rice sensiti$e c!stomers
!rchase at hi#h rices "hile more rice sensiti$e c!stomer "ait for sales to ay lo" rices
9isco!nts to re"ard $ol!me c!stomers' reeat c!stomers and emloyees (!ild c!stomer
loyalty% Boss leaders are effecti$e for retailers "ho need to increase traffic in the store%
Promotional disco!nts !sed' offer temorary ad$anta#es incl!din# ma=imi<in# sales' re$en!e
and rofit% 9!rin# a short0term disco!nt eriod' more !nits are sold' allo"in# the comany to
decrease in$entory and temorarily raise re$en!es%
5. CRITICS OF THE CONCEPTS
Tara Bachman "rote a(o!t :&air Price' L!st Price' or Ri#ht Price1 ;o" m!ch is too m!ch to
>har#e15 6(!siness,(!siness%com4 said that eole "ho cannot afford somethin# they "ant
don5t really co!nt "hen it comes to fairness% 2hat "ill co!nt' at last at first is eole "ho
12
BPMM6013 MARKETING MANAGEMENT
cannot afford "hat they need% At the same time' Tara said fair ricin# attemts to em(ody
sycholo#ical and social elements into a firm5s ricin# decisions% &air ricin# deals not "ith
afforda(ility (!t "ith ercetion% 2hose ercetion1 It seems to (e#in "ith ercetions of
those "ho are cro"ded o!t (y rices from affordin# their needs% And it @!ic)ly escalates into
those cro"ded o!t from satiatin# their "ants and desires as "ell% 2e li$e in an a#e of
anecdotal media% Any street reorter can #ra( a so( story' stic) it on the t!(e' and concl!de
that the tale is a statistically si#nificant effect of "hate$er ractice the reorter resently
a(hors% Cf co!rse no real scientist "o!ld e$er allo" anecdotes to Gro$eH a hyothesis% *ton#
le$els of correlation "o!ld (e demanded% Lo!rnalism is not a science or economist% In
addition' so in that en$ironment she analy<ed three simle r!les% 614 9on5t #et the media mad
eno!#h at yo! to ha$e them redisosed to see) o!t anecdotes that "ill r!in yo!r (!siness%
6,4 Kee the name of #ood PR >ons!ltant on yo!r seed dialer for rior cons!ltation% 634
Ma)e olitical donations and' "hen ossi(le' (ecome an imortant ad$ertiser "ith )ey
media%
L% Pa!l Peter M Lames ;% 9onally' Lr% 6,0114 stated the en$ironmental infl!ences on ricin#
incl!de $aria(les that the mar)etin# mana#er cannot control% T"o of the most imortant of
these are cometition and #o$ernment re#!lation%
>ometition3
In settin# or chan#in# rices' the firm m!st consider its cometitionand ho" cometition "ill
react of the rod!ct% Initially' consideration m!st (e #i$en to s!ch factors as'
a4 N!m(ers of cometitors
(4 Mar)ets shares' #ro"th and rofita(ility of cometitors
c4 *tren#ths and "ea)nesses of cometitors
d4 >ost str!ct!re of cometitors
e4 ;istorical reaction of cometitors to rice chan#es
f4 Bi)ely entry of ne" firms into the ind!stry
#4 N!m(er of rod!cts sold (y cometitors'and
h4 9e#ree of $ertical inte#ration of cometitors
These factors hel determine "hether the firm5s sellin# rice sho!ld (e at' (elo"' or a(o$e
cometition% And also can ans"er' :Is that the &air Prices' is the Ri#ht Prices15
13
BPMM6013 MARKETING MANAGEMENT
Go$ernment Re#!lations3
Prices of certain #oods and ser$ices are re#!lated (y state and federal #o$ernments% P!(lic
!tilities are e=amles of state re#!lation of rices% The list of some of the imortant le#al
constraint on ricin# s!ch are rice fi=in# is ille#al' deceti$e ricin# ractices are o!tla"ed'
rice discrimination that lessens cometition or is deemed in.!rio!s to it is o!tla"ed and
romotional ricin# li)e cooerati$e ad$ertisin# and rice deals are not ille#al% &rom the
a(o$e s!mmari<ation' "e can see that there ha$e en$ironmental infl!ences on ricin#
decisions%
Cther than that' as an or#ani<ation sho!ld )no" the ad$anta#es and disad$anta#e of ricin#
strate#ies stated as (elo"%
ITEMS ADVANTAGES DISADVANTAGES
M&/'2)
)/,1,.0
0 *ellers can determine costs m!ch
more easily than they can estimate
demand%
0 If all firms in the ind!stry !se this
ricin# method' rices tend to (e
similar%
0 Many eole feel that cost0l!s
ricin# is fairer to (oth (!yers and
sellers
;i#her on seasonal items 6to co$ers the
ris) of not sellin#4' secialty items'
slo"er mo$in# items' items "ith hi#h
stora#e and handlin# costs and demand0
inelastic items s!ch as rescrition dr!#s
T&/0(-8/(-2/.
)/,1,.0
Needs to consider different rices and
estimate their ro(a(le imacts on sales
$ol!me and rofits%
9eends on rice elasticity and
cometitors5 rices%
Prod!ct N!ality may differ if risin# cost
is not "ell mana#ed holdin# rice
constant
P(/1(,4(98
4&52( )/,1,.0
9eli$er more $al!e than the cometitors
and to demonstrate to rosecti$e
(!yers
The firms need to !nderstand the
c!stomer5s decision ma)in# rocess%
V&52( )/,1,.0 Cffer a s!erior rofit mar#in to
economy0riced lines' and this means
In$ol$es re0en#ineerin# the firms
14
BPMM6013 MARKETING MANAGEMENT
#reater rofit for the same le$el of
$ol!me%
Gi$es c!stomers a feel #ood factor' if
comany rod!ct and rice are a(le to
#i$e them reasona(le and acceta(le
re"ards for their !rchase%
oerations to (ecome a lo"0cost
rod!cer "itho!t sacrificin# @!ality' and
lo"erin# rices si#nificantly to attract a
lar#e n!m(er of $al!e0conscio!s
c!stomers% The )ey idea in $al!e ricin#
is $al!e 00 the cons!mer m!st feel that
he is #ettin# a #ood deal% This means
that the $al!e0riced (rand m!st offer
feat!res and (enefits that .!stify the
rice (eyond its comonents% This
e=ectation forms an !nso)en contract
of tr!st (et"een the cons!mer and the
(rand% If (ro)en' this contract may (e
irreara(le%
G*,.08/&-(
)/,1,.0
The smaller firms Gfollo" the leaderH'
chan#in# their rices "hen the mar)et
leader5s rices chan#e rather than "hen
their o"n demand or costs chan#e%
2here costs are diffic!lt to meas!re or
cometiti$e resonse is !ncertain' firms
feel that the #oin# rice is a #ood
sol!tion (eca!se it is tho!#ht to reflect
the ind!stry5s collecti$e "isdom%
A21-,*.8-;)(
)/,1,.0
More o!lar "ith the #ro"th of the
internet
The firms need to reco#ni<e the ossi(le
effects it can ha$e on their s!liers%
Ass!mtion of fair rice de$iate as
ercei$ed ricin# differs (y (!yers
6. LOCAL CASES AS EAMPLES
IKEA
15
BPMM6013 MARKETING MANAGEMENT
The toic is all a(o!t' G2hy is IKEA s!ccessf!l1H 2hen it comes to #ood @!ality and
afforda(le ho!sehold f!rnit!re' only one ma.or store comes to mind OPG IKEA' the n!m(er
one store to $isit if yo! are a (!d#et0concerned c!stomer% They offer a "ide $ariety of
ho!sehold rod!cts and items "hich yo! can (!y for ieces% They are o!larly )no"n for
their slee) and stylish modern f!rnit!re sellin# at afforda(le rices%
IKEA is a *"edish comany "hich seciali<es in comact styled and !s!ally assem(led0(y0
the0!rchaser f!rnit!re% >!rrently' they ha$e nearly 300 stores oen "orld"ide% IKEA really
(ecame s!ccessf!l (eca!se of their mar)etin# strate#y' #ood c!stomer ser$ice' ricin#' style
and f!nctionality' store location and a lar#e collection of rod!cts%
IKEA5s mar)etin# strate#y is really commenda(le as they ha$e caref!lly tho!#ht a(o!t ho"
to effecti$ely sell their rod!cts% Cne !ni@!e feat!re of the IKEA store is the flat ac)
f!rnit!reOPQ' they offer rod!cts to (e (o!#ht (y ieces and let the !rchaser assem(le it
herself or himself lessenin# the cost of the rod!ct and eliminatin# the cost of deli$ery and
transort%
IKEA is also )no"n for dislayin# #ood c!stomer ser$ice% Many c!stomers are loyal to them
(eca!se of their friendly and accommodatin# c!stomer ser$ice% Another art of their
mar)etin# strate#y is instead of lacin# resta!rant chains inside the stores' they lace their
o"n food stalls and ser$e their o"n food% &ollo"in# the comany rotocol' these delicio!s
!s!ally *"edish made delicacies are sold at afforda(le rices%
IKEA can also (oast a(o!t its rod!ct5s style and f!nctionality% 9esite the lo" cost' their
rod!cts are *candina$ian desi#ned deictin# that stylish and classy loo)% Their stores are
also desi#ned $ery !ni@!ely and sacey resented "ith $ario!s interior desi#ns and concets
for e$ery tye of room inside the ho!se%
Bocations of their different stores also contri(!te to their s!ccess% *ince ,00R' IKEA had
already oened a lot of stores "ithin 36 co!ntries li)e Germany ha$in# 83 stores and Dnited
*tates ha$in# 38 stores%
Bastly' IKEA5s s!ccess also lies in their "ide collection of creati$e and inno$ati$e rod!cts%
>!stomers "ill s!rely ha$e a lot of otions to choose from and this strate#y creates a demand
16
BPMM6013 MARKETING MANAGEMENT
for c!stomers "ho as they "ander aro!nd the store' disco$er a lot thin#s that they "ant to
(!y%
Alaster ;arris in Bearnin# Bessons from the I)ea *!ccess *tory said' :2hen I first shoed at
IKEA to (e honest I didnEt li)e it% I didnEt !nderstand it' "ritin# do"n a list of comonents'
h!ntin# for f!rnit!re ieces in a h!#e "areho!se 0 it all seemed too diffic!lt% ;o"e$er IKEA
is addicti$e 0 yo! start off (!yin# some of the small chea )nic) )nac)s aro!nd the store and
soon yo! find yo! )ittin# o!t "hole rooms "ith IKEA rod!cts% E$ent!ally yo! #et the idea
of ho" is all "or)s and are r!nnin# do"n aisles #ettin# yo! chosen le#s for a (ed' #ra((in#
3Rc to #o "ith ,Sf%
;e also stated that I)ea s!ccessf!l in the diffic!lt retail mar)et (eca!se30
14 Their staff aears haier%
I )no" that is a $ery s!(.ecti$e comment' (!t many retail store yo! #o to the staff seem
!nhay and !n"illin# to hel the c!stomer% Either that or its staffed (y teena#ers "ho seem
to ha$e tro!(le (!yin# ants that fit' let alone #i$in# yo!r reasona(le retail ser$ice% I ha$enEt
fo!nd this to (e the case at IKEA' they seem to emloy Tad!ltT emloyees% I thin) this is d!e
to their hirin# rocess and on#oin# trainin#% I had the oort!nity to hel send a half day
trainin# IKEA staff in safety in a hi#h threat sit!ation 0 I donEt )no" of many other retail
stores that #o to that tro!(le% They also ro$ide a chea (rea)fast not .!st for their c!stomers
(!t for their staff as "ell 0 res!lt 0 the staff is al"ays at "or) early 0 (eca!se its cheaer to eat
at "or) than home% No" thatEs cle$er mana#ement of h!man reso!rces%
,4 They too) a (asic money sa$in# concet and ran "ith it
IKEA flat ac)s e$erythin#% 2hate$er they canEt flat ac) they stac)% The ad$anta#es of this
is lo"er transort costs and they say the sa$in# is assed onto the cons!mer% As a (!yer in a
small Toyota >orolla carthe ad$anta#e is I can (!y lot of f!rnit!re and still mana#e to #et it
home% This has the one disad$anta#e that yo! ha$e assem(le e$erythin# yo!rself' (!t its not
that hard to do and I )ind of en.oy the e=erience "ith the satisfaction of Tma)in#T somethin#
yo!rself% *ace sa$in# .!st doesnEt sto at the store 0 the IKEA idea is sace sa$in#
17
BPMM6013 MARKETING MANAGEMENT
thro!#ho!t the ho!se 0 in fact its one of the main sellin# oints of their rod!cts 0 ho" they
can sa$e sace aro!nd the ho!se%
34 The stores are $ery "ell resented%
Not only are the stores ;DGE' they are "ell resented "ith interior desi#n ideas and
concets for e$ery room in the ho!se% Io! ha$e a ict!re ri#ht in front of yo! of ho" the
)itchen "ill loo) and the total cost to #et yo!r o"n room laid o!t that "ay% I find the stores
are clean and follo" a lo#ical attern%
84 The stores are family friendly%
2ith the family !nder #reater attac) than e$er (efore it is nice to come across a retailer #oin#
a#ainst the trend% Not only do the ha$e a lay#ro!nd for )ids' they are also hay for yo!r
children to #o thro!#ho!t the store "ith yo!% The childrenEs section is h!#e "ith #reat ideas
for layin# o!t a childrenEs room' soft toys and e$en miniat!re steel coo)in# set for children%
My children .!m all o$er (eds and try to load the trolley ! "ith toys% 2ant a chea meal 0
in the middle of their sho they ha$e a family resta!rant "ith >;EAP food% Peole )ee
comin# (ac) .!st to #et a feed' and its $ery diffic!lt to "al) thro!#h the "hole store "itho!t
comin# across somethin# yo! .!st ha$e to ic) ! and (!y%
-4 The are a ran#e of ricin# otions%
IKEA claims to (e $ery chea% In tr!th they ha$e a ran#e of rice otions% Normally in any
ran#e 0 e%#% (edroom they ha$e a ran#e of #oods from $ery chea 0 thro!#h to to of the line%
I #ot t"o chea (!t #ood (eds' (!t I had to (e caref!l in my selection and otion choices%
This is (eca!se most f!rnit!re are a com(ination of ac)s to ma)e the final rod!ct 0 so yo!r
#ot to (e caref!l "ith "hich ac)s yo! choose 0 for e=amle "ith a (ed yo! can choose (asic
slats all the "ay to $ery e=ensi$e slats 0 "hat yo! choose "ill effect the final total cost of
yo!r rod!ct%
18
BPMM6013 MARKETING MANAGEMENT
My only ro(lem "ith IKEA is that they donEt ha$e eno!#h storesJ
This article is the roerty of Alastair ;ARRI* and his immediate family% It may (e freely
re!(lished o$er the internet (!t m!st incl!de ori#inal lin)s% Alastair ;ARRI* is the main
romoter the #etfinancialfreedom8! family of "e(sites' (lo#s and ro.ects 6$isit Article
Re$i$al Uhtt3AA"""%articlere$i$al%comV 4 Alastair is rated as an e=ert a!thor on n!mero!s
article directories and is $ery oen to assistin# others on the internet%
!. CONCLUSION
19
BPMM6013 MARKETING MANAGEMENT
A fair and ri#ht rice is the rice oint for a #ood or ser$ice that is fair to (oth arties
in$ol$ed in the transaction% This amo!nt is (ased !on the a#reed0!on conditions' romised
@!ality and timeliness of contract erformances% In #o$ernment contractin#' a fair and ri#ht
rice is s!(.ect to (oth stat!tory and re#!latory limitations% 2hat yo! may ercei$e as fair'
may not (e in )eein# "ith "hat the seller has in mind' it5s (est to ne#otiate and see "hat
yo! can (oth (e hay "ith% There ha$e a tis for imro$in# >omany5s strate#y s!ch are
(ase ricin# strate#ies on so!nd research' contin!o!sly monitor ricin# decisions' reco#ni<e
that (!yers may ha$e diffic!lty in com!tin# rice differences' reco#ni<es that c!stomers
e$al!ates rices comarati$ely' reco#ni<es that (!yers tyically ha$e a ran#e of acceta(le
rices' !nderstand the imortance of relati$e rice to (!yers' !nderstand the imortance of
rice information and reco#ni<e that rice elasticity $ary%
". REFERENCES
14 >o=' L%B% 6,0014' G>an differential rices (e fair1H' Lo!rnal of Prod!ct M Brand
Mana#ement' ?ol% 10 No% -' % ,680S-%
20
BPMM6013 MARKETING MANAGEMENT
,4 ;arris' A% 6n%d%4% Ezine Articles% Retrie$ed March 13' ,018' from htt3AAe<inearticles%comA1
Bearnin#0Bessons0&rom0the0I)ea0*!ccess0*toryMidW118--8S
34 htt3AA """%(!siness,(!sinesonline%com
84 htt3AAem%"i)iedia%or#A"i)iA&airXPrice
-4 L%Pa!l Peter' Lames ;% 9onelly' Lr% % 6,0114% A reface to mar)etin# mana#ement 61,
th
edition4% McGra" ;ill%
64 Kotler' P% M Keller' K% B%' An#' *%;%' Beon#' *%M%' M Tan' >%T% 6,01,4% Mar)etin#
mana#ement3 An Asian ersecti$e 66th ed%4% *in#aore3 Pearson0Prentice ;all%
S4 6n%d%4% Retrie$ed March 13' ,018' from Kno"s2hy%com3
htt3AA"""%)no"s"hy%comA"hy0is0i)ea0s!ccessf!lA
R4 *!ter' T%A% and ;ardesty' 9%M% 6,00-4' GMa=imi<in# earnin#s and rice fairness
ercetions in online cons!mer0to0cons!mer a!ctionsH' Lo!rnal of Retailin#' ?ol% R1 No%
8' % 30S01S%
Y4 7ia' B%' Monroe' K%B% and >o=' L%B% 6,0084' GThe rice is !nfairJ a concet!al frame"or)
of rice fairness ercetionsH' Lo!rnal of Mar)etin#' ?ol% 6R No% 8' % 101-%
21
BPMM6013 MARKETING MANAGEMENT
Y% ATTA>;MENT*
22