Pricing Strategies for FirstGroup PLC - Essay Example

Pricing Strategies for FirstGroup PLC Introduction FirstGroup PLC is a transport group from Britain. The incorporation and registration of the company was in Britain, and as such, it undertakes a backlog of its operations in the United Kingdom. However, the company also operates its transport services in international markets such as Canada, Denmark, Ireland, and the United States. The company trades its stocks on the London Stocks Exchange apart from being a constituent of the FTSE 250 index. The FirstGroup Company operates a wide range of transport services such as bus, coach, rail & tram, as well as, the yellow school bus. The headquarters of the company are at Aberdeen Scotland, with the company’s Chief Executive Officer and chairperson being Tim O’Toole and Martin Gilbert respectively. These two provide the company with a great insight and appropriate leadership necessary to achieve its goals and objectives. The incorporation of the company was in 1986, and has had tremendous growth over the years to expand its operations even to international markets. Currently, it is among the leading transport services company in the world, specializing on road and rail transport. This is evident from the revenue brought in by the company over the years, such as in March 2013, the company recorded net revenue of £ 6,901 million. On the other hand, the operating income of the company for the same financial period was £ 335 million, while the net income for the company during the same period was £ 172 million. This shows how profitable the company is in its operations. the company provides employment opportunities to a numerous jobless people across the markets in which it operates, with its number of employees by the end of trading period of march 2013 being 120,000. In addition, the company has an online platform that enables its customers to enjoy convenience and efficiency while dealing with it, as well as, provide the company an opportunity to increase its market control and holding within the industry by gaining a competitive advantage over other market players. Pricing Strategies at FirstGroup PLC The FirstGroup PLC undertakes a number of transport services across various markets and routes within the United Kingdom, the United States, Canada, Ireland and Denmark where it operates. In order to maximize on its profits, the company has to adopt a pricing strategy that enables it to make a profit with every transaction. As such, it adopts a different pricing strategy depending on the type of transport service it provides, such as by bus, train or tram, as well as, the route and distance in which it operates, considering the other factors if transportation such as traffic jams, calibre of passengers, as well as, the frequency of the routes the use. The company differentiates various pricing strategies depending on the transport services they offer, which is its core product of business i order to increase its market share, as well as, improve the profitability within the transport industry, especially at a national level within each area of operation. Transport is a very essential service within the economy of every nation. This is because transport facilitates the movement of people as well as, that of goods and services to move from one place to another and as such, increase their utility as well as productivity. For instance, the FirstGroup PLC in a day transports about 2.9 million passengers in more that forty major towns and cities across the world, using its nearly 9,000 fleet of buses. These passengers include students going o school, workers reporting for work at their offices or workstations, people going for trips and holidays, as well as, facilitating minor movements or people from one place to another for them to undertake their various economic activities. Transportation enables the economy run. In fact, effective means of transport is the right fuel to project the economy of country to facilitate fast growth and development. In addition, this enables the country to continue running its economic activities efficiently, and as such, every company specializing in the transport sector plays a major role to the economy of the country by enabling it grow and develop in both output and productivity. Setting the Price for Transport While setting the transport price for the various routes the company operates, it has to ensure that it considers both economic as well as social factors affecting the profitability of the company. In economic factors, the company has to ensure that it remain profitable through its operations, and as such, charge a fare price or fee that is enough to cover all the operational costs of the journey as well as maintain a substantial balance for revenue in profits. As such, the company charges prices that are in line with the market price, as well as, the economic conditions of the country. These prices are not too high as to fleece the passengers off their hard-earned currency, and at the same time, they are not so low as to deny the company an opportunity to make profits from its operations. However, when considering the social factors affecting the profitability and growth of the company, it is imperative that the company charges competitive transport charges that will enable it attract and retain customers for their services. This includes attracting new customers and retaining existing customers as loyal and trustful consumers of the company’s wide range of transport services. In order to achieve this, the company has to take a deeper look into the consumer behaviour of its clients and their rational choice. The consumer behaviour determines the type of services various consumers will go for, and as such, control their choice and decision making while dealing with a variety of services. The rational choice depends on the consumer behaviour. A consumer chooses what she or he wants, or prefers most depending on the level of satisfaction they derive from the service, or their personal tastes and preferences. Consequently, as for the case of FirstGroup PLC, the company has to structure is fare prices in such a way that it meets the tastes and preferences of the customers, and as such, control or influence their rational choice while still keeping the company competitive across the market. This is despite the fact that the company has some considerable level of power in setting the prices for its transport services. In considering the consumer behaviour and rationale, the company has to set fare prices that are both appealing to customers, and economical depending on the transport industry within the country of operation. A higher price as mentioned earlier detracts customers from the company, while a lower price attracts customers to the company. In such a case, it is the role of the company to determine how low is too low for economic reasons, and how high is similarly reasonable for economic reasons. This will enable it attract, keep, maintain, and even grow its clientele over the years. Structure of the Industry The transport industry is the most avid industry in every economy in the world since its unavailability creates various economic hurdles that may lead to the economic crush of the entire country. As such, the FirstGroup PLC is one of the leading transport players in the UK market. In fact, the company controls nearly 20% of all the transport services in the country. This show just how important the role of transport is, and what role the company plays in undertaking its operations within the economy. On the other hand, it is also imperative to note that there are other players in the market offering similar services, and competitive prices for the same service within a common market share. As such, the company has to keep its competitiveness by offering the best services at the most competitive prices that are acceptable within the market and preferred by most of its customers in order to influence their rational choice. The transport industry market is a perfectly competitive market, whereby there is freedom of entry and exit of new players into the market, and there is little or no government control within its operations. For instance, the FirstGroup PLC is a product of the privatization act by the government whereby it sold most transport companies to private operators. The company is however a public corporation with its shares trading at the London Stocks Exchange. In such a market, the demand industry operators have full knowledge of the demand in the market, and as such, strategize their operations to take advantage of such demand. Most of the people using these transport services are students going to school; middle class workers who cannot afford to buy and fuel their own vehicles everyday to their places of work, as well as, other construction workers and labourers looking to get by with their economic activities. The production theory governs the operations of companies within this industry. The theory of production explains the principles through which a business entity decides how much of each commodity it sells, or produce, and how much of each labour, fixed capital good, and raw materials it employs. As such, the production theory involves the relationships between prices and commodities and the production factors used. The theory of production enables the companies operating within the transport industry estimate the expected demand across various markets of its operations. Consequently, this provides these companies with a solid platform to determine the right pricing strategies to employ within each market sphere, and as such, maintain profitability as well as, remain relevant within the economy. Market Share and Industry Concentration The current market share for the company is 20% of the total transport industry in the United Kingdom. This makes the FirstGroup PLC as one of the major players in the transport industry within the United Kingdom. However, the remaining 80% of the market share has equally same competiveness in relation to market share and control. They do not pose the company such a huge threat, but they still compete for a controlling market share within the industry, and as such, keep the FirstGroup PLC on its toes in relation to market control and command. The availability of other players in the industry also provides the customers with a wide range of choice, and as such, requiring every player within the industry to enhance, as well as, improve its services in order to attract more customers, as well as, influences the rationale choice of its customers. Types of Pricing Strategies Employed By FirstGroup PLC As mentioned earlier, the company utilizes a number of pricing strategies depending on the type of market in which it operates, as well as, industry environment. This considers both constraints of empirical evidence and prediction of economic theories in setting up the right prices that are affordable and accepted both economically and socially by all the involved stakeholders. It is imperative to note that the market structures also affect the effectiveness of a pricing strategy adopted by the company, such as the perfectly competitive market structure, and the oligopoly market structure. The pricing strategies adopted in each of this market structure vary in accordance to their effectiveness, as well as, the ability of the market to accept and sustain them over time, thereby enhancing the profitability and productivity of the various industry players involved. Monopoly Power Monopoly markets are those, which the supplier is the only player in the industry, and as such, has all the power in setting up the right prices for the services they offer. Under such a market structure, various pricing strategies emerge whereby industry players adopt strategies such as cost plus pricing and joint products. In cost plus pricing, the company calculates all the costs incurred in the production of a service, and in the case of FirstGroup PLC, the labour, fuel, and other administrative charges, and then adds a considerable profit margin to set the effective price for the transport services offered by the company. As such, the price settled at enables the company to recover all the costs it incurred in producing the service, and still make a considerable profit at the end of the day. Similarly, players within this market can employ three other pricing strategies in order to increase its market share and enhance the profitability. The first pricing strategy applicable in this situation is price discrimination. The pricing strategy involves the service provider charging the customers’ different prices for the same service, depending on the categories of market segment that the customers come. For instance, the FirstGroup PLC can charge a high price for its transport services in upscale or up market areas such as suburbs and residential courts, while charge a smaller fee for the same service in a low-income settlement area. The second pricing strategy is the peak load pricing and two part tariffs. In peak load pricing, the company sets its pricing according to the demand of its services during differentiated periods of the day, the month or the year. Some of the peak periods in transport include morning hours when people get to work and students go to school, evening hours when industries and schools close down their operations for the day and workers retire to their homes. other include holiday seasons when family members and friends travel from town to another, or from one city to another to enjoin their family, friends and relatives in the celebrations and festivities such as during Christmas season, Easter holidays, and school holidays for students. As such, the company charges high prices for its services during these peak seasons to take advantage of the massive demand developed, while lowers its prices during off peak seasons or periods. On the other hand, a two part tariff is a price discrimination strategy whereby the product price has two parts, a lump sum fee and a per unit charge. The lump sum fee is for the right to purchase a product, and then the price per unit is for each unit consumed. The FirstGroup PLC applies this strategy mainly with school going children in its yellow bus tracks. The company also incorporates other aspects of pricing strategies such as bundling and transfer pricing, which entail using a pricing strategy whereby two multinational corporations set an agreed price for trading their services. As such, the FirstGroup PLC operates transfer pricing in such a way that it agrees on set prices for each service. Oligopoly Under the oligopoly market structure, few players in the industry come to an agreement to do business and as such, set the same price for their services in order to enable each player to make some profit. However, labour market forces control the performance of the company, with the first labour market known as labour supply and demand. The demand and supply of labour affects the pricing strategies of the firm. In the second labour market scenario, the company incurs problems arising from monopsony or principle-agent relationships. A monopsony market structure is one similar to the monopoly, however, in this case, a larger buyer, and not the seller, controls a large portion of the market in order to drive the prices down. In such an event, the company has to comply with the provisions of the largest customers in the market, and as such, set their prices in accordance with demands of the supplier. Conclusion In conclusion, it is imperative that the company adopts a feasible pricing strategy that ensures both profitability and market effectiveness. the strategies adopted by the company so far are optimal because it considers all the market provisions, such as the company, the competitors, the customers, as well as, the economy. The best way to improve these pricing strategies for the company is by creating optimal structures in developing prices. 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The First Group PLC. Data. Retrieved from http://www.firstgroup.com/corporate/cr/climate_change_and_environment/data.php The First Group PLC. FirstGroup American Statistics. Retrieved from http://www.firstgroup.com/north_america/media/fga_statistics.php The First Group PLC. Greyhound. Retrieved from http://www.firstgroup.com/north_america/our_services/greyhound.php The First Group PLC. Group Presentations. Retrieved from http://www.firstgroup.com/corporate/investors/presentations.php The First Group PLC. Lanarkshire Express. Retrieved from http://www.firstgroup.com/ukbus/glasgow/journey_planning/lanarkshire_express/ The First Group PLC. Our Company. Retrieved from http://www.firstgroup.com/corporate/our_company/ The First Group PLC. Single and Return Fares. Retrieved from http://www.firstgroup.com/ukbus/scotland_east/tickets/single_fare/ The First Group PLC. Welcome to First in Aberdeen. Retrieved from http://www.firstgroup.com/ukbus/aberdeen/ The First Group PLC. Welcome to First in South East and central Scotland. Retrieved from http://www.firstgroup.com/ukbus/scotland_east/ Yahoo Finance. FirstGroup PLC (FGROF). Retrieved from https://uk.finance.yahoo.com/q/ks?s=FGROF Read More