Strategic Management: Competitiveness and Globalization - Case Study Example

PRICING AND CHANNEL: CASE STUDY Pricing is an important element in the success of any business. It is one of the marketing mix elements besides place, product and promotion. These components of the marketing mix influence how the business is likely to perform. Thus, they have to work in harmony, and all of the elements need to be functional and strong at all times for the survival of the business. it is apparent that the company’s strength is determined by its ability to increase the price of its products or services and still retain its customer base. Thus, the management is tasked with the responsibility of choosing the strategy that best works for the company depending on factors such as the competition, customers’ needs, cost of production and the stage of development (Hilt & Ireland 2008). Companies use different strategies in pricing their products in orders to survive in a competitive market. Generally, these strategies are categorized into cost, customers, and competitor based pricing. These strategies can further be divided into penetration pricing, differentiation pricing, skimming and loss leader pricing. Penetration pricing involves setting a low price for products especially for a new company that is entering the market. Differentiation is normally realized through giving coupons and price decoys. Skim pricing involves setting a high price in the industry before a company starts getting other competitors. The strategy works best for innovation companies that are a monopoly in their respective industries. The strategy serves to make the company make as much profit as possible before other companies join in. Loss leader pricing strategy is whereby the company sells its products at a loss so as to get a big market share and curve out a niche for its products (kalb, 2010). I am going to analyze the pricing strategies of two competing companies; Apple and Dell companies. These two companies sell computers, and each has claimed a percentage of the market share in the market. Apple has been using very aggressive pricing strategies distinguish it from its competitors and get ahead in the industry. One of its strategies is skimming. The company’s products are sold at high prices as compared to other computers in the market. Another strategy that Steve Jobs applied is using decoys. The specific strategy takes advantage of poor consumer choices also known as mental accounting. The strategy works by the company selling the same product at different prices. The only difference in the products is usually a few additional features such as more applications for the tables. Customers compare the prices and prefer buying one over the other despite the products being almost the same. For instance, The company sells the ipad at $229, $299 and $399. The psychological selling tactics used lead consumers to believing that the higher the price of the product the better the quality it has. The other strategy is the setting a high price that customers can use for reference. The particular pricing strategy is usually implemented as the product is being released into the market and soon after, Apple drops the prices drastically. Consumers who buy the electronic in the beginning end up feeling cheated when the products end up retailing at almost a third of the price a few months later. However, the company cashes in on the consumers curiosity to sample the novelty of their products. The company manages to stay afloat by constantly innovating new technologies in the computer market. Apples other competitors such as Samsung and Nokia are struggling able to keep up with the technological giant company due to this strategy. The Apple Company used innovation as a pricing strategy instead of focusing on beating Dell in the computer industry. The Apple Company’s ability to diversify its products also gives it an edge over other players in the industry. Apple also uses the bundle pricing strategy that involves making buyers come back for more apple products after they have bought one of their product. That is because, Apple’s products are usually not compatible with the computer, and they cannot be integrated with Apple Computers. The Dell company, on the other hand, has a limited variety of products in the market like apple. However, they sell their products at a considerably low price. The company uses a customer value based pricing strategy that pays attention to the customers’ needs. The strategy company also uses differentiation method that positions its products as consistent over the years. In conclusion, companies ought to have the right pricing strategy because it is a determinant of the company’s success in the market. The management has to research extensively to determine the most suitable strategy for the company at that particular moment and implement it accordingly. The company’s decision makers should keep in mind that pricing is also a marketing technique that can influence volume of sales. Channel system A channel system the business context refers to the means through which the company markets products to the end user and ensures that products reach the consumers in time. Companies cannot operate effectively without a functional channel of distributing its products and ensuring that it reaches the target consumers. Arguably, it will not make any sense to spend too much money on marketing a company’s products yet it has not established how the products will reach the consumers. Channel system should be part of the initial planning of the business operations even before the company starts its operations. The company should conduct intensive research before deciding on the type of channel that will be best for the company. It should consider factors such as the scope and location of its market. The best channel system should include both the company’s outlets for its products as well as the private dealers who specialize in distributing products. For example, a company such as wallmart can be a perfect channel of distribution because it has a large chain of shops. The business should however choose the best distributors when they decide to outsource the function to independent companies. The selection should be based on the performance of the company in terms of the customer service, value addition and the volume of products that they are able to dispense. Some of the options for distribution available include hiring salespeople to selling to retailers, wholesalers, distributors and even directly to consumers. Ross (2008) notes that today’s consumers are very knowledgeable since they can obtain a lot of information from the intranet, franchise, internet, business partners, e- mails, business to business partnerships, television, newspapers. Today’s customers are also very demanding, and they insist on being supplied with adequate information about what they are buying. Gourdin(2000) observes that consumers are sometimes influenced by the adverts and promotional messages. They can buy depending on impulse as well as emotional feelings. Consumers want companies to be intimate with them in terms of meeting their, intuitive, emotional and psychological needs. These are some of the factors that companies should consider carefully before settling on a distribution channel. He warns that those companies that only implement customer services tactics that are directly linked to the profitability of the company, will in the long run lose since their supply chains will struggle to keep up with the stiff competition in the market. Thus, companies should use strategies with the customers in mind. They also want business to be in touch with them when they want to make complaints about the products. He advices businesses to deliver quality products to these consumers since they are more empowered nowadays, and they can decline to buy from the company if the products delivered to them do not meet their expectations. The channel system can also be referred to as the supply chain. Ross (2008) defines the supply chain as the planning and coordination of the process by which the products reach the targeted consumers at the right time and in the right manner. Ross notes that a supply chain strategy can consist of three distinct categories. The first one is the vertical intergrated channel whereby the producer does all the distribution activities by itself without enlisting the help of wholesalers or distributors. The advantages of using this strategy for the company is that, it gets involved with all the activities from receipt of customers’ orders, distribution, after sales services and personalized services to the customer that can encourage customer loyalty. The company is also able to have control over pricing. The downside of it is that there is a lack of specialization that intermediaries can offer to customers. The second strategy is the third party intermediary that purely involves the use of intermediaries to distribute products to end users. The company does not get involved in any stage of the distribution process. The intermediary is involved in all the processes of differentiation, marketing, bulk breaking, packaging and supplying. The method allows customers to enjoy specialized services. The company however losses the power of pricing its products to the intermediaries and has to share profits with them as well. Lastly, there is the hybrid selling model that combines the efforts of both the producer and the intermediary suppliers in availing the products to consumers. The method is the most efficient of the three strategies since it gives the producers a chance to have partial control over the supply channel by influencing the pricing and delivery process to consumers. The company is also able to maximize on the marketing and service abilities of the intermediaries. Kotler & keller (2011) concurs with Ross and recommends the use of multiple channels of distribution. He proposes the integrated marketing system which consist of using different available channel that the company can afford comfortably. He notes that, the business is likely to enjoy several benefits such as lower cost, a wider coverage of the market and more profits. According to these various authors, the best channel that can reap the most rewards for a company is the one that involves multiple channels, as well as a producer in the distribution of products. Certainly, the importance of a good channel system cannot be overlooked if the business is to compete effectively in the market and survive. However, the management should ensure that the chain of supply is not too long since the longer it is, the less profit the company is likely to make. References Ross, F. D., (2008), The Intimate Supply Chain: Leveraging the Supply Chain to Manage the customer Experience, New York, CRC Press. Kotler, P.,and Keller, K. (2011), Marketing Management 14th Edition, New York, Prentice Hall. Gourdin, K. (2000). Global Logistics Management: A Competitive Advantage for the New Millennium. Blackwell Publishing. Hitt, M., Ireland, D.I., & Hoskisson, R., (2008) Strategic Management: Competitiveness and globalization, Cases, Volume 2, New York, Cengage Learning. Kalb, S. I., (2010), fundamentals of High- technology Marketing: What Marketers Need to Know, Ireland, K& A Press. Read More