A1. It is important for businesses to differentiate themselves from the competition, especially in an environment of intense competition. One way to differentiate from the competition is on the basis of quality (Kaun) as Apple has demonstrated. This type of strategy aims at convincing the customers that the company’s products and/or services are superior to the competition in terms of quality. A business may also differentiate itself from the competition on the basis of location (Kaun). It is not only important to offer the right products/services but also to distribute them through channels preferred by or accessible to the customers. The company following this strategy may be Wal-Mart which often targets low-income regions with little or no competition. The third strategy to differentiate from the competition may be price in which the company claims to offer the lowest prices to price-sensitive market segments and Wal-Mart has used this strategy successfully to become the largest retailer in the U.S.
A2. Cash flows are important to businesses, especially those in the early stages or with limited resources. While profits are important, they cannot ensure the survival of the business which needs liquid assets to meet everyday expenditures which is why cash flows are equally if not more important. Even the most profitable businesses may be forced to go out of business if they cannot maintain liquidity. While there are many factors that can affect a business’ cash flow position, two important factors are accounts receivables management and inventory management (National Federation of Independent Business (NFIB)).
In ideal world, all sales take place in case but businesses are often forced to extend credit lines to customers to build customer loyalty and boost sales. While credit extensions can boost sales, they also affect liquidity, thus, businesses should make sure they collect accounts receivables from customers as soon as possible and even offer incentives for early payments if they have to. Another factor that affects cash flow position is inventory. Businesses need inventory to prevent the possibility of lost sales and loss of goodwill but there are storage costs involved and inventory items also suffer from wear and tear over time. In addition, inventory items are not readily convertible to cash, thus, businesses should strive for efficient inventory management systems to improve liquidity by both minimizing unproductive tied-up of assets in inventory and by reducing storage costs that also negatively affect profits.
A3. The three pricing strategies are follow-the-leader pricing, suggested retail price, and by-product pricing. Follow-the-leader pricing strategy involves following the pricing policies of the largest competitor, as the name implies. This strategy is usually difficult for smaller companies to follow because their larger competitors can afford lower prices than them due to economies of scale and greater negotiation power against suppliers (Investopedia). Suggested retail prices are the prices recommended to the distribution intermediaries by the manufacturer of goods. The distribution channels may or may not follow the pricing recommendations by the manufacturer (Investopedia). The third pricing strategy is by-product pricing in which the revenue from sale of by-products help keep the prices of main products lower. In other words, revenue from by-products subsidizes the main product, enabling the firm to attract more customers for the main product through lower prices (Monash University).
The difference between follow-the-leader pricing and the other two pricing strategies is that follow-the-leader pricing is determined by factors external to the business such as the pricing policy of the market leader. In contrast, suggested retail pricing also takes into account the purchase price businesses pay the manufacturer of the goods and similarly, by-product pricing is also influenced by the revenue yielded by by-products. The difference between suggested retail prices and by-product prices is that while suggested retail prices are almost always higher than cost of purchases from the manufacturer, by-product pricing strategy may result in goods being sold below production cost, due to being subsidized by by-products.
A4. New businesses need significant information about their consumers and the most important information could be obtain through 4P analysis which is product, price, promotion, and place. First of all, the businesses need to understand the needs and/or desires of targeted customer segments to increase the probability of success. Similarly, businesses need to understand the pricing preferences of customers even though certain competitive strategies such as differentiation on the basis of quality may help new businesses acquire some pricing power. The businesses also need to investigate which marketing channels may be most useful in reaching the customers and market the company and its product/services. In addition, the company should choose distribution channels that are preferred by the targeted market segments and make them accessible to as many customers as possible.
There are different ways companies can gather information about their customers. One strategy is to use direct questioning techniques such as face-to-face interviews, questionnaires, and focus groups. Another option is to conduct market research in-house or hire the services of an independent market research company. Similarly, the companies can also gather information from public sources such as government publications as well as competitors’ literature (The Times 100).
A5. One marketing strategy that may be useful to new businesses with limited funds may be search engine optimization (SEO). Effective SEO techniques increase the probability of companies’ products and services coming at top of online search engine results. One tactic to appear on top of search engine results is to add high quality and useful information on company websites or blogs. Another strategy is to use online marketing such as email marketing. The company may encourage current as well as potential customers to sign up for email newsletters or promotion through incentives such as discount codes and access to exclusive sales events. The third strategy may be social media which has enjoyed explosive growth over the last few years. The companies could make its social media marketing more productive by paying close attention to fans and customers’ comments and providing satisfactory solutions. Customers who are impressed often create viral content, providing useful online word-of-mouth marketing for the companies that pay close attention to their market segments.
Investopedia. Follow-The-Leader Pricing. 6 August 2013 <http://www.investopedia.com/terms/f/follow-the-leader-pricing.asp>.—. Manufacturer’s Suggested Retail Price – MSRP. 6 August 2013 <http://www.investopedia.com/terms/m/manufacturers-suggested-retail-price-msrp.asp>.
Kaun, David E. Monopolistic Competition and Product Differentiation. 6 August 2013 <http://people.ucsc.edu/~nuclear/econ1/testinfo/chapter16.pdf>.
Monash University. By-Product Pricing. 6 August 2013 <http://www.buseco.monash.edu.au/mkt/dictionary/result.php?term=By-Product%20Pricing>.
National Federation of Independent Business (NFIB). The Importance of Healthy Cash Flow for Small Businesses. 6 August 2013 <http://www.nfib.com/business-resources/business-resources-item?cmsid=49882>.
The Times 100. Discovering customer needs through research. 6 August 2013 <http://businesscasestudies.co.uk/barclays/discovering-customer-needs-through-research/types-of-market-research.html#axzz2bFqqpamC>.