Pricing Strategies Assignment, Research Paper Example

Question # 1. Determine and discuss a pricing strategy (Penetration or Skimming).

Penetration pricing aims to set the lowest price possible in order to dominate the market share for the Happy Babies diaper product. This is the stratagem employed by most fledgling and entrepreneurial businesses that are wishing to get into the market (NetMBA.com, 2010).

There is plenty of logic that backs up the choice to enter a competitive market with the lowest prices available. In areas of consumerism where demand is elastic, this creates an increase in the consumers coming to wherever the lowest prices are. Using the Happy Babies diaper has its own unique patent which will augment its sales.

A strategy consisting of large volumes and large market shares with a significant cost reduction per unit (NetMBA.com, 2010). Popular products may be priced with a very low mark-up, instantly gaining the attention of consumers who are highly demanding the coveted product.

Another stratagem employed by the company could be the product being sold at such a low mark-up, that the cost of production actually exceeds the price paid by the consumer. This is known as a ‘loss leader’ (NetMBA.com. 2010). The company will then create accessory devices to go along with the main consumer attraction. The prices of the accessory devices have a high mark up, thus evening out any losses from the low price available to the main product.

Question # 2. Determine and discuss pricing tactics (Product line pricing, Value pricing, Differential pricing, or Competing against private brands) to be used for your product.

For my product, I have chosen product line pricing. The art of product line pricing is the establishment of a single price for all products in the mentioned product line (Allbusiness.com, 2000). This can be seen in huge clothing outlets like the GAP and Old Navy. There are often bins of t-shirts for all sizes with a big sign reading $10 or maybe $15 dollars for larger sizes.

The product line factors in the demand as well as that of the competing company (Allbusiness.com, 2000). Back to the concept of sales involving technical equipment that can be sold at low mark-ups with high-mark-up accessories, a lower price on hardware may raise the price on software and vice versa. Selling a set of hardware at the same price can create the demand for the over-priced software. This is the same for times when valuable pieces of software all decline in price, coaxing the consumer to buy at the low price.

In the case of Happy Babies, the product has differentiated itself to be so unique as to be the sole product on the market of its kind. By establishing a consumer base that favors this brand and its uniqueness, the Happy Babies diapers will have a market in which it is the sole proprietor of the diaper alarm products.

Question # 3. Identify any legal and ethical issues related to the pricing tactics.

The peer-reviewed journal article entitled “Antitrust Enforcement with Price-Dependent Fines and Detection Probabilities” documents a study that set out to determine the efficacy of antitrust enforcement. The fines are derived from the cartel prices, and the likelihood of the identifying the infringement of antitrust laws is also dependent on the cartels. The use of these antitrust laws eliminates the possibility of monopolies and their control on prices. Despite the laws, price-fixing is still a major problem in the global economy. This study sets out to replicate previous studies conducted to determine the most efficacious way to deter cartels and collusion practices.

This study compares one methodology in reducing the existence of collusion and cartels to the other most eminent methodology. The first mechanism observes the market price fluctuations  to determine the penalty imposed on antitrust violators. The second mechanism uses fixed-amount fines for violations incurred against antitrust laws. At the conclusion of this study, the researchers found that there was a complementary relationship between the two methodologies and  the implementation of both policies was not mutually exclusive.

When fines are proportioned according to the profits which were illegally obtained allows maximum profit for cartel prices even in the cases when fines are static. The profit for the cartel prices remains below the monopoly price.

Question # 4. Prepare a marketing distribution channel analysis identifying the wholesaler, distributor, and retailer relationships.

Distribution is the process by which the product reaches its intended goal: The Consumer. There is a fallacy in many marketers’ beliefs that if they merely present a better product, consumers will buy it (ConsumerPsychologist.com, 2010). Retailers, on the other hand, may not be willing to store the new products (Ibid). Retailers are often swayed by the existing performance and consumer demand of products that exist already.

Question #5. Discuss how the distribution strategy fits the product/service, target market, and overall marketing objectives for the company.

Efficiency and cost effectiveness  in the management of supply chains is critically important to the profitability of companies. Networking must be strategically planned, and a thorough evaluation of different routes must be completed in order to diminish costs and heighten profit margins.

Due to relatively-cheap cost of transport, managers frequently use trains to move supplies across country. Calculation of cost is derived through a series of simple multiplication formulas. The number of vehicles multiplied by the number of days for the average delivery will produce the number of vehicle in the system can be approximated at any time. The number of vehicles in the system can then multiplied by the average invoice price to determine the amount of money based in in-transit inventory. The money set in in-transit inventory was then multiplied by an estimated 15% holding cost (.15) to determine the annual in-transit holding cost (Lieber et al, p278). At this point, the amount of money that could be saved by simply limiting the delivery time by one day (approximately 8.25% decrease in the average delivery time) can save a company $24 million annually (Lieber et al, p 282). This clearly demonstrates the importance of efficiency in supply chain management as the savings of this minor adjustment provides an enormous reduction in company costs.

References

Houba, Harold, Evgenia Motchenkova, and Quan Wen. “Antitrust Enforcement with Price-Dependent Fines and Detection Probabilities.” Economics Bulletin 30.3 (2010): n. pag. Web. 30 Jul 2010

Hopper, Paul. Understanding Cultural Globalization. London: Polity, 2007

Lieber, Robert J. and Ruth E. Weisberg. Globalization, Culture, and Identities in Crisis. International Journal of Politics, Culture, and Society, Vol. 16, No. 2 (Winter, 2002), pp. 273-296

Mazzarella, William. “Culture, Globalization, Mediation”. Annual Review of Anthropology, Vol. 33 (2004), pp. 345-367

Rantenen, Tehri. The Media and Globalization. New York: Sage Publications, LTD., 2004