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2013-14
PROJECT REPORT
ON
PRICING STRATEGY OF NOKIA
SUBJECT
STRATEGIC MARKETING
BY
NAME OF STUDENT: GAURAV. J. MADYE
COLLEGE SEAT NO :- 15
MASTER IN COMMERCE
( SEMESTER-II )
K.M.AGRAWAL COLLEGE OF
ARTS & COMMERCE, KALYAN (W).
CERTIFICATE
K.M.AGRAWAL COLLEGE, KALYAN
PROF.
(EXTERNAL GUIDE)
(PRINCIPAL)
DECLARATION
I, GAURAV. J. MADYE THE STUDENT OF K.M.AGRAWAL
COLLEGE OF M.COM (PART-1) HERE BY DECLARE THAT I
HAVE COMPLETED THIS PROJECT ON
IN THE PRICING STRATEGY OF NOKIA
FOR THE ACADEMIC YEAR 2013-14.
THE INFORMATION SUBMITTED IS TRUE AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.
I HERE BY FURTHER DECLARE THAT ALL
INFORMATION OF THIS DOCUMENT HAS BEEN OBTAINED
AND PRESENTED IN ACCORDANCE WITH ACEDAMIC RULES
AND ETHICAL CONDUCT.
COLLEGE SEAT NO. :- 15
YEAR:- 2013-14
DATE : PLACE :- KALYAN
NAME & SIGNATURE
(GAURAV. J. MADYE)
ACKNOWLEDGEMENT
I EXPRESS MY GRATEFUL THANKS TO PROJECT GUIDE
PROF. SUJIT SINGH FOR HIS TIMELY GUDENCE AND HELP
RENDERED AT EVERY STAGE OF THE PROJECT WORK.
I EXPRESS SINCERE THANKS TO OUR PRINCIPLE PROF.
ANITA MANNA MADAM, WHO HAS GIVEN HER VALUABLE
MORAL SUPPORT, MOTIVATION, INSPIRATION, AND
EDUCATIONAL ATMOSPHERE IN THIS INSTITUTE FOR THE
SUCCESSFUL COMPETITION OF THE PROJECT WORK.
I ALSO WISH TO EXPRESS MY REGARDS TO THE
LIBRERIAN FOR HER CO-OPERATION IN PROVIDING ME WITH
NECESSARY REFERENCE MATERIALS.
I ALSO EXPRESS MY THANKS TO FACULTY MEMBERS
AND FOR CO-OPERATION AND HELP GIVEN IN COMPLETING
THIS PROJECT.
FURTHER THANKS TO MY PARENTS, MY FREINDS AND
MY FAMILY FOR THEIR UNLIMITED AND SUPPORT DURING MY
STUDY.
GAURAV. J. MADYE
4
TABLE OF CONTENTS
TOPICS
PAGES
INTRODUCTION .6
IMPORTANCE OF PRICING..8
FACTORS EFFECTING DEMAND ....11
SETTING PRICING POLICY12
PRICING INFLUENCES ON PRICING POLICY.. 18
NEW PRODUCT PRICING STRATEGIES .. 21
PRODUCT MIX PRICING STRATEGIES 24
PRICE ADJUSTMENT STRATEGIES 25
SETTING THE PRICE .... 27
FACTORES EFFECTING PRICING DECISION 28
INITIATING AND RESPONDING TO PRICE CHANGES ..30
INTRODUCTION
Price is the one element of the marketing mix that produce revenue ; the
other element produce cost, prices are the easiest marketing mix element to
adjust ; product features, channels and even promotion take more time .price
also communicating to the market the companys intended value positioning
of its product or brand.
Narrowly, price is the amount of money charged for a product or
service.
Broadly, price is the sum of all the values that consumers
exchange for the benefits of having or using the product or service.
Dynamic Pricing: charging different prices depending on
individual customers and situations.
PRICING-INTRODUCTION
Setting the right price is an important part of effective marketing. It is the
only part of the marketing mix that generates revenue (product, promotion
and place are all about marketing costs).
Price is also the marketing variable that can be changed most quickly,
perhaps in response to a competitor price change.
Put simply, price is the amount of money or goods for which a thing is
bought or sold.
The price of a product may be seen as a financial expression of the value of
that product.
For a consumer, price is the monetary expression of the value to be
enjoyed/benefits of purchasing a product, as compared with other available
items.
The concept of value can therefore be expressed as:
(Perceived) VALUE = (perceived) BENEFITS (perceived) COSTS
A customers motivation to purchase a product comes firstly from a need
and a want: e.g.
Need: "I need to eat
Want: I would like to go out for a meal tonight")
The second motivation comes from a perception of the value of a product in
satisfying that need/want (e.g. "I really fancy a McDonalds").
The perception of the value of a product varies from customer to customer,
because perceptions of benefits and costs vary.
Perceived benefits are often largely dependent on personal taste (e.g. spicy
versus sweet, or green versus blue). In order to obtain the maximum possible
value from the available market, businesses try to segment the market
IMPORTANCE OF PRICING
When marketers talk about what they do as part of their responsibilities for
marketing products, the tasks associated with setting price are often not at
the top of the list. Marketers are much more likely to discuss their activities
related to promotion, product development, market research and other tasks
that are viewed as the more interesting and exciting parts of the job.
Yet pricing decisions can have important consequences for the marketing
organization and the attention given by the marketer to pricing is just as
important as the attention given to more recognizable marketing activities.
Some reasons pricing is important include:
Most Flexible Marketing Mix Variable For marketers price is the
most adjustable of all marketing decisions. Unlike product and
distribution decisions, which can take months or years to change, or
some forms of promotion which can be time consuming to alter (e.g.,
television advertisement), price can be changed very rapidly. The
flexibility of pricing decisions is particularly important in times when
the marketer seeks to quickly stimulate demand or respond to competitor
price actions. For instance, a marketer can agree to a field salespersons
request to lower price for a potential prospect during a phone
conversation. Likewise a marketer in charge of online operations can
raise prices on hot selling products with the click of a few website
buttons.
Setting the Right Price Pricing decisions made hastily without
sufficient research, analysis, and strategic evaluation can lead to the
marketing organization losing revenue. Prices set too low may mean the
company is missing out on additional profits that could be earned if the
target market is willing to spend more to acquire the product.
Additionally, attempts to raise an initially low priced product to a higher
price may be met by customer resistance as they may feel the marketer is
attempting to take advantage of their customers. Prices set too high can
also impact revenue as it prevents interested customers from purchasing
the product. Setting the right price level often takes considerable market
knowledge and, especially with new products, testing of different pricing
options.
Trigger of First Impressions - Often times customers perception of a
product is formed as soon as they learn the price, such as when a product
is first seen when walking down the aisle of a store. While the final
decision to make a purchase may be based on the value offered by the
entire marketing offering (i.e., entire product), it is possible the customer
will not evaluate a marketers product at all based on price alone. It is
important for marketers to know if customers are more likely to dismiss
a product when all they know is its price. If so, pricing may become the
most important of all marketing decisions if it can be shown that
customers are avoiding learning more about the product because of the
price.
Important Part of Sales Promotion Many times price adjustments is
part of sales promotions that lower price for a short term to stimulate
interest in the product. However, as we noted in our discussion of
promotional pricing in Part: 15: Sales Promotion tutorial, marketers
must guard against the temptation to adjust prices too frequently since
continually increasing and decreasing price can lead customers to be
conditioned to anticipate price reductions and, consequently, withhold
purchase until the price reduction occurs again.
11
H-D TV for about $2000.A price many could afford. In this way, Sony
skimmed the maximum amount of revenue from the various segments of
the markets.
13
MARK-UP PRICING:
The most elementary pricing method is to add a standard
mark-up to the products cost. Construction companies submit job bids
by estimating the total project cost and adding a standard mark-up for
profit.
15
$10
300,000
50,000
unit cost
(1-desired return on sales)
= $16
1-0.2
=$20
TARGET-RETURN PRICING:
In target return pricing the firm determines the
price that would yield its target rate of return on investment (ROI). Target
pricing is used to general motors, which price its auto-mobiles to achieve
a 15-20 percent ROI.
PERCIVED-VALUE PRICING:
In increasing number of companies based their price on
the customers perceived value. They must deliver the value promised by
their value proposition, and the customer must perceived this value. They
use the other marketing mix elements, such as advertising and sales
force, to communicate and enhance perceive value in buyers mind.
VALUE-PRICING:
In recent years, several companies have adopted value
pricing, in which they win loyal customers by charging a fairly low price
for a high quality offering. Among the best practitioners of value pricing
are WALL-MART, IKEA, and SOUTH-WEST airlines.
16
GOING RATE-PRICING:
In going rate pricing, the firm basis its price largely on
competitors prices. The firm might charge the same, more, or less than
major competitors. In oligopolistic industries that sell a commodity such
as steel, paper, or fertilizers, firms normally charge the same price.
ACTION TYPE PRICING:
Is growing more popular, especially with the growth of the
internet. There are over 2000 electronic market places selling everything
from pigs to use vehicles to cargo to chemicals. One major use of actions
is to dispose of excess inventories or to use good. Company needs to be
aware of the three major types of actions and their separate pricing
procedures
*ENGLISH ACTIONS (ascending bids)
*DUTCH ACTIONS (descending bids)
*SEALED BIDS ACTIONS
GROUP PRICING:
The internet is facilitating methods where by consumers are
business buyers can join groups to buy at a lower price. Consumer can go
to volumebuy.com to buy electronics, computers, subscriptions, and
another item.
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GAIN-RISK-SHARING PRICING:
Buyer may resist accepting a sellers proposals because of the high perceive
level of a risk. The seller has the option of offering to absorb part or all of
the risk if he does not deliver the full promised value.
(1) Costs
In order to make a profit, a business should ensure that its products are
priced above their total average cost. In the short-term, it may be acceptable
to price below total cost if this price exceeds the marginal cost of production
so that the sale still produces a positive contribution to fixed costs.
(2) Competitors
If the business is a monopolist, then it can set any price. At the other
extreme, if a firm operates under conditions of perfect competition, it has no
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choice and must accept the market price. The reality is usually somewhere in
between. In such cases the chosen price needs to be very carefully
considered relative to those of close competitors.
(3) Customers
Consideration of customer expectations about price must be addressed.
Ideally, a business should attempt to quantify its demand curve to estimate
what volume of sales will be achieved at given prices
(4) Business Objectives
Possible pricing objectives include:
To maximize profits
To achieve a target return on investment
To achieve a target sales figure
To achieve a target market share
To match the competition, rather than lead the market
PRODUCT PRICING STRATEGIES
Developing a pricing strategy perplexes many CEOs, marketing and sales
executives, and brand managers. It's not surprising really: real businesses
don't always follow the pricing strategy models that business schools and
books on pricing strategy present. But there are a few basic guidelines that
can help take some of the mystery out of the process of establishing a
successful pricing strategy.
We consider that there are four basic components to a successful pricing
strategy:
1. Costs. Focus on your current and future, not historical, costs to
determine the cost basis for your pricing strategy.
2. Price Sensitivity. The price sensitivities of buyers shift based on a
number of factors and your pricing strategy must shift with them.
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20
1 ) Market-skimming pricing
The practice of price skimming involves charging a relatively high price
for a short time where a new, innovative, or much-improved product is
launched onto a market.
The objective with skimming is to skim off customers who are willing to
pay more to have the product sooner; prices are lowered later when demand
from the early adopters falls.
The success of a price-skimming strategy is largely dependent on the
inelasticity of demand for the product either by the market as a whole, or by
certain market segments.
High prices can be enjoyed in the short term where demand is relatively
inelastic. In the short term the supplier benefits from monopoly profits, but
as profitability increases, competing suppliers are likely to be attracted to the
21
market (depending on the barriers to entry in the market) and the price will
fall as competition increases.
The main objective of employing a price-skimming strategy is, therefore, to
benefit from high short-term profits (due to the newness of the product) and
from effective market segmentation.
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2) Market-Penetration pricing
Penetration pricing involves the setting of lower, rather than higher prices in
order to achieve a large, if not dominant market share.
This strategy is most often used businesses wishing to enter a new market or
build on a relatively small market share.
This will only be possible where demand for the product is believed to be
highly elastic, i.e. demand is price-sensitive and either new buyer will be
attracted, or existing buyers will buy more of the product as a result of a low
price.
A successful penetration pricing strategy may lead to large sales
volumes/market shares and therefore lower costs per unit. The effects of
economies of both scale and experience lead to lower production costs,
which justify the use of penetration pricing strategies to gain market share.
Penetration strategies are often used by businesses that need to use up spare
resources (e.g. factory capacity).
A penetration pricing strategy may also promote complimentary and captive
products. The main product may be priced with a low mark-up to attract
sales (it may even be a loss-leader). Customers are then sold accessories
(which often only fit the manufacturers main product) which are sold at
higher mark-ups.
Before implementing a penetration pricing strategy, a supplier must be
certain that it has the production and distribution capabilities to meet the
anticipated increase in demand.
The most obvious potential disadvantage of implementing a penetration
pricing strategy is the likelihood of competing suppliers following suit by
reducing their prices also, thus nullifying any advantage of the reduced price
(if prices are sufficiently differentiated the impact of this disadvantage may
be diminished).
A second potential disadvantage is the impact of the reduced price on the
image of the offering, particularly where buyers associate price with quality.
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24
26
SEGMENT
Ultimate
Gold standard
Luxury
Special need
Middle
Price alone
EXAMPLE
Rolls-Royce
Mercedes Benz
Audi
Volvo
Buick
Kia
Figure 16.1 shows nine price quality strategies. The diagonal strategies
1,5,and 9 can all co-exit in the same market; that is , one firm offer a high
quality product at a high price , another offers an average quality product at
an average price and still another offers a low quality product at a low price.
All three competitors can co-exit as long as the market consists of three
sgroups of buyers: those who insist on quality, those who insist on price, and
those who balance the too.
Strategies 2,3and 6 are ways to attack the diagonal positions. Strategy
to says Our product has the same high quality as product 1 but we charge
less. Strategy 3 says the same thing and offers and even greater saving. If
quality-sensitive customers believe these competitors, they will sensibly buy
from them and save money (unless firm earns 1s product has acquirable
snob appeal.
Positioning strategies 4,7and 8 amount to over-pricing the product in
relation to its quality. The customer will feel taken and will probably
complain or spread bad words of mouth about the company.
27
HIGH
HIGH
MEDIUM
LOW
1. PREMIUM
STRATEGY
2.HIGH-VALUE
STRATEGY
3.SUPER- VALUE
STRATEGY
4.OVERCHARGING
STRATEGY
5.MEDIUM-VALUE
STRATEGY
6. GOOD-VALUE
STRATEGY
7. RIP-OFF
STRATEGY
8. FALSE-ECONOMY
STRATEGY
9.ECONOMYSTRATEGY
MEDIUM
LOW
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is not always realistic. For instance, product pricing may depend heavily
on the productivity of a manufacturing facility (e.g., how much can be
produced within a certain period of time). The marketer knows that
increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the products price. But
increasing productivity may require major changes at the manufacturing
facility that will take time (not to mention be costly) and will not
translate into lower price products for a considerable period of time.
External Factors - There are a number of influencing factors which
are not controlled by the company but will impact pricing decisions.
Understanding these factors requires the marketer conduct research to
monitor what is happening in each market the company serves since the
effect of these factors can vary by market.
Pure Monopoly:
Market consists of a
single seller
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Cost-Plus Pricing
Adding a standard markup to the cost of the product.
Popular because:
Sellers more certain about cost than demand
Simplifies pricing
When all sellers use, prices are similar and competition is
minimized
Some feel it is more fair to both buyers and sellers
Competition-Based Pricing
Going-Rate Pricing:
Firm bases its price largely on competitors prices, with less
attention paid to its own costs or to demand.
Sealed-Bid Pricing:
Firm bases its price on how it thinks competitors will price
rather than on its own costs or on demand.
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sales, may carry some positive meaning to customers: the item is hot
and represents and usually good values.
COMPETITORS REACTION:
Competitors are most likely to react with the number of firms
are few, the product is homo-genius and buyers are highly informed.
Maintain price: A leader might maintain its price and profit margins,
believing that (1) it would lost too much profit if it reduces its price
(2) it would not lost much market share, and (3) it could regain market
share when necessary.
Maintaining price and add value: The leader could improve its
products and services, communication. The firm may find it cheaper
to maintain price and spend money to improve perceived quality then
to cut price and operate at a lower margin.
Reduced price: A leader might drop its price to match the
competitors price. It might do so because (1) its cost falls with volume
,(2) it would lost market share because the market is price sensitive,
(3) it would be hard to rebuild market share once it is lost. This action
will cut profit in the short-run.
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Motorola
Nokia
Samsung
Sony-Ericsson
41.0%
68.6%
55.7%
65.3%
The result shows Nokia users are the most satisfied with their product
followed by Sony-Ericsson and LG. The results of above survey are
important since, mobile phone is a device which is frequently replaced in
few years time, so, the brand which provides maximum satisfaction to users
will be able to maintain high loyalty and hence, maintain its market share.
A segregation of Indian market on the basis of price bands is shown below.
We can see that mobile phones are available in various price bands from Rs.
2,000/- & less up to Rs. 50,000/-
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3. Players like Onida have mobiles in lower prices (Rs. 2,000/-) to middle
price range (till Rs.9, 900/-).
4. Players like Motorola, Nokia, LG and Sony Ericsson have mobile phones
avaible in all different price range and hence, are able to target all the
different segments of the market.
country. Nokia considers India to be one of its most important markets. The
company's Code Division Multiple Access (CDMA) 5 facilities is located in
Mumbai and provides software and technical support to CDMA consumers
in India and other Asia Pacific countries. In 2004, Nokia was chosen as the
most respected consumer durables company by Businessworld6. The
magazine wrote, This Finnish Companys debut at the top of the heap says
two things.
One, that its strategies - including ones like developing a phone
specifically for India - are respected. But, more importantly, Nokia's win is
also an endorsement of the importance of the ubiquitous cell phone as a
durable in today's world. After all, unlike its competitors, most of which
offer a slew of durables, Nokia is mostly a cell phone company.
In 2005, Nokia was recognized as the Brand of the Year by the
Confederation of Indian Industry, India's apex industry association. The
company was chosen for this award because of its high brand recall, well
established distribution channels and being 'most preferred' by the
consumers.
ABOUT NOKIA
Nokia was founded in 1865 by Fredrik Idestam in Finland as a paper
manufacturing company. In 1920, Finnish Rubber Works became a part of
the company, and later on in 1922, Finnish Cable Works joined them. All the
three companies were merged in 1967 to form the Nokia Group.
In the late 1970s, Nokia started taking an active interest in the power and
electronics businesses and by 1987, consumer electronics became Nokia's
major business. Nokia created the NMT mobile phone standard in 1981 and
launched the first NMT phone, Mobira Cityman, in 1987. The company
delivered the first GSM network to Radkilinia, a Finnish company in 1991,
and in 1992, Nokia 1011 a precursor for all Nokia's current GSM phones was introduced.
In the 1990s, Nokia provided GSM services to 90 operators across the
world. Another significant move of the company during this period was the
divestment of its non-core operations like IT. The company focused on two
core businesses mobile phones and telecommunications networks.
Between 1992 and 1996, the company exited from the rubber and cable
businesses as well... Nokia entered the Indian market in 1994. The first ever
37
GSM call in India was made on a Nokia 2110 mobile phone on its own
network in 1995. When Nokia entered India, the telecom policies were not
conducive to the growth of the mobile phone industry.
The tariffs levied on importing mobile phones were as high as 27%, usage
charges were at Rs.16 per minute and, at these high rates, consumers did not
take to mobile phones. Nokia also had to face tough competition from other
powerful global players like Motorola, Sony, Siemens and Ericsson...
Nokia was quick to learn from its mistakes and adopted strategies to regain
its lost market share. Globally, during the first quarter of 2005, the
company's sales reached 7.4 billion euros, with the company selling 54
million phones during the period. In India, Nokia continued its leadership in
GSM with a market share of 74% in March 2005. Nokia also surpassed
Samsung in color mobiles in the GSM segment, recording a share of 55% in
the same month Nokia reorganized itself at the global level in 2004. At this
point, a multimedia division was formed.
The division's Indian operations concentrated on promoting the concept of
high- end telephones in smaller towns while going in for higher volumes in
larger cities. The marketing division of the company concentrated on making
distributors in small towns sell high-end products. Though, the distributors
were skeptical to startwith, by the end of 2004, the process was streamlined
and the results started to show.
MARKET SEGMENTATION
There are different types of mobiles for different needs of an individual.
Nokia targets the entire segment with his variety.
Top Segment----------------Classy Products
Middle Segment-----------Best alternative
Low End Segment---------High Tech Product at Low Price
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CONCLUSION
The scope of the research paper was to discuss the concept on global
communication strategy adopted by various Indian and Global Companies
while entering the foreign market. This analysis and discussions has been
administered by selecting certain successful foreign Companies from the
Fortune 500, 2011 listing and other successful Indian Companies which have
made a mark in India and foreign market. This concept and discussion can
be extended through primary data collection methods to further strengthen
the topic into various dimensions of global, local and global strategic
implementation.
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BIBLOGRAPHY
REFERENCES:
www.google.com
www.wikipedia.com
www.yahoo.com
www.bcg.com
www.tutor2u.com
www.echeats.com
www.knowthat.com
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BOOKS:
Principles of marketing (Gary Armstrong and Philip Kotler 10th
edition)
Marketing Management (Philip Kotler 11th edition)
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