Pricing Strategies for NIVEA - Essay Example

?Pricing Strategies for NIVEA Table of Contents Executive Summary for Assignment One 3 Assignment One 3 Introduction 3 Value Based Market Segmentation 6 Market Segment 7 Consumer Segment 9 Executive Summary for Assignment Two 10 Assignment Two 10 Price Structure 10 The Importance of Segmented Pricing 11 Executive Summary for Assignment Three 14 Assignment Three: Situation during the Recession Period 14 Product Importance of Nivea for Customers 14 Determination of the Importance of Products of Nivea 14 Determination of Demand 15 Pricing Strategy during the Period of Recession 16 Penetration Pricing during Recession 17 Cost-Based Pricing during Recession 17 Price Skimming during Recession 17 18 References 19 Bibliography 22 Executive Summary for Assignment One Nivea is one of the leading names in the global consumer products market pertaining to skin care and beauty related products. This assignment will look to provide a brief overview of the company i.e. Nivea. The discussion will further proceed with identification of certain factors such as market share and products of Nivea along with the competition that the company faces. In the subsequent section of the assignment, value based market segmentation will be applied along with its six relevant steps in order to comprehend the market and consumer segment of Nivea. Assignment One Introduction Nivea has emerged as a popular name in superior quality skin care and beauty products. It is one of the biggest cosmetic brands which transformed from a skin care product to a trustworthy personal care product for all family type. Nivea has been able to create a niche for itself in not only European market but also global market. It has been able to withstand tough competition globally and has emerged as a leading player. It has expanded its operations in many new markets such as South America, Eastern Europe, Central America and Asia. Nivea has also created many sub-brands. However, the products are manufactured and marketed by an international company, the Beiersdorf Company. Beiersdorf Company was incorporated in the year 1882 (Keller, 2007). Nivea occupies almost 15% of men’s fairness market. Sales of male skincare products have increased after launching of the ‘Nivea for Men’. The company wanted to raise its share in the UK male skincare segment. For this reason Nivea launched the ‘Nivea for Men’ in the year 2008 (The Times 100, 2008). In the face care category, Nivea Visage is the most successful product in the markets of Europe, France, Austria, and Germany. In Germany this product captured 1% market share, in Austria it surpassed 1% market share just 3 months after product launch, in France it covered more than double the target market share (Maschauer & Et. Al., 2004). In Germany’s shower segment, Nivea Bath Care occupied 11.9% share, in bath product segment Nivea Bath Care occupied 11.5% share, in the liquid soap segment, it occupied 7% of market share and in solid soap segment Nivea Bath Care occupied 13.6% market share (European Cosmetic Markets, 2007). Beiersdorf operates in imperfect competitive markets. There are generally many sellers in this type of competition. The offered products are primarily differentiated. There are competitor brands present such as Rexona, FA, Palmolive, Dove and many others. There is free entry for entering the market and company can sustain in the long run. The products are also differentiated. The product cost in this type of competition is determined by market power and buyers or sellers have ideal information about the brand of the company (Reynolds, 2005). During 1970 to 1980, Nivea extended the brand to a wide range of skin care products, such as Nivea creme and Milk Soap among others. Nivea creme first came in the market of Germany in the year 1912. In Europe, this creme was launched in the year of 1912, in the United States it was launched in the year of 1922 and in other countries including South America, it was launched in 1926. The other products of the brand are body soap, powder and sun protection products, i.e. tannin lotion and oil. By 2005, Nivea created six more product groups which are Skin Care products (Nivea Visage, Nivea Body, Nivea for Men, Nivea Baby, Nivea Sun, Nivea Creme, Nivea Soft, Nivea Vital, Nivea Lip and Nivea Hand products) and Personal care products (Nivea Beauty, Nivea Intimate Care, Nivea Bath Care, Nivea Deodorant and Nivea hair Care products). Value Based Market Segmentation Value based segmentation facilitates pricing with actual value perceived and delivered to customers. This provides information that which type of customers are paying most profitable price. For making a value based segmentation six steps are needed. 1. Determine Basic Segmentation Criteria: The main objective of any market segmentation is to divide a market into sub-groups whose consumers have common preference. This can differentiate the purchasing behaviour of the consumers. For example, Nivea Soft is one of the main targeted products for female customers and Nivea for Men is targeted for younger male customers. 2. Identify Discriminating Value Drivers: After determining the segmentation criteria, company must identify the value drivers. This is the factor which motivates customers to buy their product. For example, in Nivea Sun the value driver is the protection of the skin from harmful ray of sun. 3. Determining Operational Constraints and Advantages: In this step, the company evaluate the operational advantages. This step describes that which value can provide more efficient product at lower cost than other brands. It also shows that which drivers are constrained by company’s own resources and operations. 4. Creating Primary and Secondary Segments: In this step, company learn about how consumer’s value differs with the cost of products and also learn the constraint of serving different type of customers. The primary segmentation is based on most important criteria which differentiate the consumers. The secondary segmentation divides the primary segmentation to subgroups according to second important criteria. 5. Creating Detailed Segment Description: Segmentation must be made in regular business pattern so that the sales person and marketer know that what type of consumer represents in each segment. 6. Develop Segment Metrics and Fences: Segmentation is not useful unless a company create the metrics of value of a market segment and create fences which motivate customers to accept the value for that market segment. Metrics are the basis on which customer pay value for the product. Fences are the rules, regulation and policies that consumer must follow for taking the price discounts or rewards. (Nagle, 2008). Market Segment Market segmentation is quite essential in order to gather a comprehensive idea regarding the most promising target market for a product. Market segment provide the key to improve the company’s competitive position. The company must choose that segment where it can fit best with its strengths. By doing so, business will build on knowledge and will be able to develop competitive advantage and avoid price attack from other rival (Croft, 1994). Nivea uses market research for segmenting its market. The company categorise groups of consumers with certain characteristics which are age, lifestyle, gender, preference and attitude. In many ways Nivea conducts several market researches with the purpose of segmenting its market by using focus group to know about the customers and testing their products in different markets. For instance, by formulating a market research Nivea found that younger consumers are more likely to use beautifying products than others. It also found that most of its competitors marketed medicated products in the market. That is why Nivea created ‘Nivea Visage Young’ which is a skin care product targeting mainly the young girls who were reluctant to use medicated products. This strategy provided Nivea the competitive advantage over other brands available in the market. Moreover, Nivea always wanted to improve their products to achieve higher effectiveness and larger customer base. Because of this reason, Beiersdorf regularly tests its products on a sample group of customer before launching it. This testing helps to make any changes or modifications in the product when needed, for example: Changing the ingredients of the product. Nivea has changed alcohol ingredient from one of their products by testing it on a target customer and applied natural sea salts, minerals in that product Launching totally new product Creating new design for appealing to younger customers Launching products in different size i.e. smaller or larger, according to consumers need (The Times 100, 2011) Nivea developed its strategies of marketing based on product development and geographical extensions. Through product expansion, Nivea has reached every consumer segment in every stage of its product life cycle. It collected the feedback from customers of their personal needs. By geographical extension strategy Nivea has now become popular in the whole world. It has already developed 500 different products and reaches almost every segments of the targeted market. For instance, in case of NIVEA Sun, it is a leading sun protection product. There are three main value segments in the sun care product market: Protection from harmful rays Moisturising after being in the sun Self – tan, for those who need ‘cosmetic tan’ every year. From market analysis it has been found that customers don’t purchase skin care products just for ‘protection from sun’. The customers’ preferences are different. Young female customers generally prefer the luxurious sun care products, men and boys prefer the convenience type of skin products. For this reason, NIVEA Sun made a spray version especially for men because they prefer convenience products. It also developed multi-coloured formulation for children’s sun care products for making ‘application process’ more entertaining. Consumer Segment NIVEA uses two key factors for segmenting the products in terms of demography and attitudes perceived by customers. The demographic segment includes those people who purchase their product and the attitude refers to the reason for people purchasing a product. The ‘Sun Protection Products’ comes under first category. The easy – to – use products come under second category. Thus, by analysing the market Nivea has created five segments. Consumer Concerned is the customer who mainly use Nivea product for sun protection. Sun Avoider is the customer who prefers to avoid direct sunlight. Nivea has easy – to – use products for this customer segment. Sun Lovers prefer to get the benefits of sunshine. They do know about the sun protection factor. These customers want a brand which they can trust. If any company gain their trust then these customers will be loyal to the brand. Careless Tanners are the type of customers admires sunshine and they have no anxiety to protect their skin from it. Beauty Conscious is the customer who is extremely cautious about the effect of SPF’s (Sun protection factor) and always wants to protect skin. (The Times 100 Edition 11, 2011) Executive Summary for Assignment Two Price structure of a product plays a significant role in its success in the market. This assignment looks to identify and apply segmentation pricing tactics for varied markets. Seven generic strategies for segmenting the market by the use of fences will be highlighted. The criteria that are necessary for success will be identified and also the importance of segmented pricing will be evaluated. Assignment Two Price Structure 1. Segmenting by Buyer Identification: Every customer has different characteristics which distinguishes them. Company uses computer based information such as customer’s credit attain, geographic location, neighbouring property value, taxes, residents, whether the customer is repeat customer and all these factors are considered in this segmentation. 2. Segmenting by Purchase Location: Many consumers distinguish value of product at different location. This type of consumer comes under purchase location. This type of segmentation occurs mainly in international marketing, where same product has different value in different country. 3. Segmenting by Time or Purchase: At times consumer in different segment buy at diverse times. This type of consumer can be segmented under this category. One example of this type of segment is ‘Priority pricing’ where new products are offered at full price and at times extra premium charges if the demand is too high for that product. 4. Segmenting by Purchase Quantity: When consumers of different segment purchase at different quantity they are put into purchase quantity segmentation. There are four types of discount – ‘ordering discount’, ‘step discount’, ‘quantity discount’ and ‘two part cost’. (Baker & Et. Al., 2010). 5. Segmentation by Product Bundling: At times a single price change for a bundle of two products is needed for an organisation for price segmentation. It is an effective strategy. This strategy comes when the preferences for two different products fulfil a certain situation. One example for this type of segmentation is optional bundling where any product can be purchased separately but if the product is purchased in bundle then cost will be below than normal price. 6. Segmenting by Tie – INS metering: Customer, who normally puts much value on a product the more deeply they use it, comes under this type of segment. 7. Segmenting by Product Design: The significant factor in segmenting by product design is diversity in value by difference in substitutes, or earnings. To make this tactic, company must first lower the price of product so that customer purchase it and meet the need of price sensitive people. (Hogan & Nagle, 2006). The Importance of Segmented Pricing Developing a good price segment can maximise the sales and generate good profit for organisation. A good segmentation is the key to sustain the strong competitive place in the market. Segmentation reveals the characteristic of customer or particular bundling combination. Pricing Strategy Pricing is important for every organisation. There are three reasons for which every organisation provide so much attention to pricing. These are: The higher price and higher quantity of product sale provides company revenue. Thus, every company must control cost and operation expenses in production of product. Changing a product or its distribution process takes so much time and is quite expensive, but in case of price in can be increased or reduced instantly similar to real time. Every company takes considerable steps to formulate a good price for a product. The pricing strategies of other competitors are also anticipated for making price decisions. Thus, pricing can provide an idea about other competitor’s product and their strategies. Pricing is provided with great deal of attention because it is an important way of differentiation. In case of homogeneous product many consumers prefer those brands which are cheap than other brand. Many factors affect the price of a product. A price must be made in such a way which provide value for money and attract customer to buy. For certain customers, the perceived value is that of high quality and for others it is only cost of the product. Customer benefit Customer Cost Customer benefit is the quality of product, satisfaction and brand image. Customer cost is the cost which the customer will sacrifice for buying the product such e.g. time, money and effort (Ferrell & Hartline, 2008). There are many pricing strategies which a company can use such as: Cost based Pricing: This strategy focuses mainly on product quality and does not consider the customers and price. Penetration Pricing: This strategy emphasises on low price. Company which want to ensure high quantity of sales of their product, use this strategy. It attracts customers and creates a habit for purchasing this product. Price Skimming: This strategy helps business organisations to gain maximum profit before other competitors enter in the same market segment. It is a process where company sets a price too high for a product for encouraging those customers who want to be ‘first to buy’ and can pay a premium price for that. When Nivea launched their product ‘Nivea Visage’ its price was slightly higher than its previous version. The reason was to show the customer its new formulation, new packaging style and extended product range. The company perceived that its product is targeted to young girls and mothers. Therefore, the price must be fixed in such a way, which offer value for money or it would be out of reach of its target market. Nivea Visage is one of the top skincare products which meet the beautifying requirement. It was also the price leaders, so other competitors followed its price. The company needs to assess regularly the prices of the competitors who are functioning in the same market segment. The pricing strategy of Nivea is different than retailers. Retailers can use any strategy for selling its product but Nivea sells it product to the retailers at fixed price. Executive Summary for Assignment Three The assignment three is intended towards the discussion on the situation of Nivea during the period of recession which was experienced in the recent times. This section will present the importance of the products for customers that are offered by the company. With reference to the importance, demand can be estimated and further determined through the inclusion of the concept of price elasticity of demand. On the basis of the findings of importance and prevailing demand for the Nivea products, the pricing strategies during the period of recession will be determined. Assignment Three: Situation during the Recession Period Product Importance of Nivea for Customers Nivea is a company that offers a wide range of beauty products to its customers. The people are selective in choosing the most appropriate beauty products for themselves as beauty is “more than one ideal”. The manufacturers of the beauty products i.e. Nivea are renowned in the world and are one of the world’s best companies for skin care products. Over the years, since the inception, Nivea has evolved as a world brand and its products are effectively used all over the international market. The importance of the products offered by Nivea can be observed from the sustaining growth that Nivea has pursued over the years throughout the world. Nivea has evolved as an international brand in the category of consumer’s goods company and had been awarded the ‘Most Trusted Brand’ for ten years consecutively (Bendix, 2010). Determination of the Importance of Products of Nivea The importance of the products offered by Nivea is understood by the preferences the company puts on the building of the marketing mix. As product is an essential element of the marketing mix, its importance can be determined by the company’s strategy regarding the product offerings. The company has evolved as a world’s brand through the offerings of various products with the similar brand identity. The competitive advantage of the company is built through the product offerings that are aimed towards various segments of the market. The product importance can be specifically determined by the high concern of the company towards the quality of the products. The company made modifications on certain products on adherence to the needs of the customers. For example, the company eradicated the use of alcohol in a product for adhering to the environmental requirements. Based on a research on the demands of the consumers, the company introduced two new products aimed towards satisfying the customers. Product descriptions were accordingly changed for targeting more customers along with the introduction of packs with larger sizes (The Times 100, 2011). Determination of Demand The products of Nivea in the cosmetics category of skin and beauty care products have boosted the demand level of the company’s products. The owing company of Nivea, Beiersdorf had increased its sales throughout the year 2009 in the segment of consumer business. The growth has been initiated by the sales of NIVEA products all over the world which showed an organic growth of 1.3% in the world market. In the Eastern Europe, the generation of growth was up to 1.7% and in Latin America, the sales in the consumer market enhanced by 13.3%. In the regions of Asia, Africa and Australia, sales increased by 5.0% while the group in China achieved a strong growth of 12.7% (Beiersdorf, 2010). The above data of percentage on the sales of the company reveals the success after the period of recession. The data of the period of recession will be analysed effectively for determining the demand during the period of recession. In the year 2008, the consumer business segments of Beiersdorf boosted sales by a percentage of 12.3. With respect to the currency rate of that period, the company received a growth of 10%. The sales figures in the year 2008 showed that the company grew faster than the market affected by the impacts of recession. Data reveals that if the acquisitions of the hair care business in China and interest rate increment to 100% are excluded, then the figures will show that the organic sales growth was 8.6% (Beiersdorf, 2008). The sales figures during the year 2009, however, showed a downward trend in the organic group sales as the amount decreased by 0.7% as compared to the sales figures of the previous year 2008. But the growth in the segment of consumer business had been up to 1.2% over the sales of the year 2008. The overall sales figure in the Americas increased by a percentage of 6.9 in the organic aspect. At the exchange rate of currency at that time, sales increased by 2.3% during the year 2009 as compared to the previous year. Despite the increased amount of sales, the EBIT (Earning Before Interests and Taxes) in the business segment totalled to an amount of €558 million in the year 2009 (€615 million in the year 2008). The margin decreased to 11.1% compared to 12% during the last year. The decrease in the ultimate earning had been due to the impact of recessionary results (Beiersdorf, 2009). Pricing Strategy during the Period of Recession From the discussion on the determination of demand for the products of Nivea during the period of recession, it is evident that although the earnings were less, the recession had less impact on the volume of sales. The sales figure was initiated by the prevalence of demand of the beauty products. Thus, it is evident that the demand was slightly impacted by the recession and thus the company can initiate any of the following pricing strategies for enhancing the profitability during the period of recession. Penetration Pricing during Recession The decrement in earnings with the increased volume of sale is an indication that there had been decrease in the frequency of purchases by the consumers. Following the strategy of penetration pricing, the company can lower the prices of products and influence the volume of purchases of the consumers. As this form of the strategy encourages the development of buying habit among the consumers, this can be initiated by the company pertaining to the prevailing demand in the world market. This strategy is generally used my marketers when a new product is launched. Nivea can, however, use this strategy for penetrating into the market in the period of recession. Cost-Based Pricing during Recession The company can otherwise follow the strategy of cost based pricing that is aimed towards setting a price that simply cover the price or consists of a component of profit. This strategy focuses on the product form and does not consider the perspective of the consumers. If the company follows this strategy, there can be decrement in the prices that will in turn affect the volume of purchases of the consumers. Moreover, in the period of recession, consumers will definitely welcome certain decrement in the prices. Cost-based pricing can allow the company maintain profitability even in the period of recession. Price Skimming during Recession The price skimming is a policy that the company can effectively use soon after the recessionary impacts become mild. In this strategy, an initial price is set which is considerably high. The price is set for a unique product that encourages the customers who wants to acquire the advantage of ‘first buy’ and thus receive a premium. The company can use this strategy for gaining an upper hand over their competitors before the rivalry takes pace. As soon as the market indicates that the recession is about to get over, the company can take the advantage of early price setting and gain the competitive advantage. The strategy performs its level best if applied along with the introduction of new product that complies with the customers’ demands (Docstoc, 2010). Thus, from the above discussion of the situation of the company during the period of recession, it seems that pricing strategies will work best if applied with the introduction of newer innovative products. References Baker, W. L. & Et. Al., 2010. The Price Advantage. John Wiley & Sons. Bendix, K., 2010. Taking NIVEA from Tradition to Modernity - Mr. Kai Bendix, Managing Director, NIVEA India Pvt. Ltd. Articles. [Online] Available at: http://www.igtcindia.com/articles/Taking-NIVEA-from-Tradition-to-Modernity---Mr-Kai-Bendix-Managing-Director-NIVEA-India-Pvt-Ltd.html [Accessed March 05, 2011]. Beiersdorf, 2008. Results of Operations – Business Segments. Management Report. [Online] Available at: http://www.annualreport.beiersdorf.com/2008/en/management-report/results-of-operation-business-segments.html [Accessed March 05, 2011]. Beiersdorf, 2009. Results of Operations, Balance Sheet Structure and Financial Position. Group Management Report. [Online] Available at: http://www.annualreport2009.beiersdorf.com/en/book.php?startpage=1 [Accessed March 05, 2011]. Beiersdorf, 2010. Beiersdorf is Well Equipped for New Market Reality. Press Release. [Online] Available at: http://www.beiersdorf.com/Press_News_Service/Press_Releases/Beiersdorf_is_well_equipped_for_new_market_realit.html [Accessed March 05, 2011]. Croft, M. J., 1994. Market Segmentation: a Step-by-Step Guide to Profitable New Business. Routledge. Docstoc, 2010. NIVEA Visage Young. Docs. [Online] Available at: http://www.docstoc.com/docs/17452002/NIVEA [Accessed March 05, 2011]. European Cosmetic Markets, 2007. Germany: streaming ahead.(market share of bathroom products). Highbeam Business. [Online] Available at: http://business.highbeam.com/4143/article-1G1-157947184/germany-streaming-ahead [Accessed March 05, 2011]. Ferrell, O. C. & Hartline, M. D., 2008. Marketing strategy. Cengage Learning. Hogan, J. & Nagle, T., 2006. Segmented Pricing: Using Price Fences to Segment Markets and Capture Value. Strategic Pricing Group. [Online] Available at: http://pricing2b.com/web_documents/segmented_pricing.pdf [Accessed March 04, 2011]. Keller, K. L., 2007. NIVEA: Managing a Multi-Category Brand1. Coolbrands. [Online] Available at: http://85.17.192.207/coolbrands/dmdocuments/ecNIVEA.pdf [Accessed March 05, 2011]. Maschauer, S. & Et. Al., 2004. Pure Energy. Welovead. [Online] Available at: http://www.welovead.com/en/works/details/7c2ynsoz [Accessed March 05, 2011]. Nagle, T. T., 2008. The Strategy and Tactics of Pricing. Pearson Education India. Reynolds, R. L., 2005. Pure Competition. Basic Microeconomics: An Outline. [Online] Available at: http://www.boisestate.edu/econ/lreynol/web/PDF/short_12_pure_comp.pdf [Accessed March 05, 2011]. The Times 100, 2011. The Use of the Marketing Mix in Product Launch. NIVEA. [Online] Available at: http://www.thetimes100.co.uk/case-study--the-use-of-the-marketing-mix-in-product-launch--87-303-2.php [Accessed March 05, 2011]. The Times 100 Edition 11, 2005. NIVEA Sun Brief Case Study. IRI. The Times 100, 2008. Developing a marketing plan. NIVEA for Men. [Online] Available at: http://www.ices-study.org/WhatIsEnterpreneurship/CaseStudies/(case%20study)%20nivea.pdf [Accessed March 05, 2011]. Bibliography Beiersdorf, 2003. Annual Press Conference - Cosmed Division. Presss Releases. [Online] Available at: http://www.beiersdorf.com/Press_Media_Relations/Press_Releases/2003-02-05%20Annual%20Press%20Conference%20-%20cosmed%20divisi.html [Accessed March 05, 2011]. Business Resource Software, 2011. Market Segmentation. Center for Business Planning. [Online] Available at: http://www.businessplans.org/segment.html [Accessed March 05, 2011]. Gale, B. T. & Swire, D. J., 2006. Value-Based Marketing & Pricing. Customer Value. [Online] Available at: http://www.cval.com/pdfs/VBMarketingAndPricing.pdf [Accessed March 05, 2011]. Hinterhuber, A., 2003. Towards Value-Based Pricing-An Integrative Framework for Decision Making. Industrial Marketing Management. [Online] Available at: http://lp-website.s3.amazonaws.com/pdfs/Towards_value_based_pricing.pdf [Accessed March 05, 2011]. Taylor, P. J., 2010. Creating a pricing Function to Adopt Value Based Pricing and Stop Margin Leakage. The Wiglaf Journal. [Online] Available at: http://www.wiglafjournal.com/corporate/2010/09/creating-a-pricing-function-to-adopt-value-based-pricing-and-stop-margin-leakage/ [Accessed March 05, 2011]. Read More