Pricing: New Product Development - Essay Example

? Pricing-New Product Development The Company The company is about to introduce a new product in UK market, which is an “eco car bin’’, a restoring eco friendly product. The aim is to launch the product in utmost 200 sites of the country and with a strong pricing strategy. In long-term goals, the primary objective is to initiate a marketing mix strategy with a right set price for effective product development. Market promotion is a secondary stage, which would be possible if a pricing strategy is there to meet it adequately. Analysis of design and technical features of the product are essential part of product development and would be required in price evaluation period. The challenge is to engage with the competitors and meet the market in effective and deliberate way. In the longer run, the aim is to build a relationship with British Petroleum in order to meet the primary objective of market capturing. This will introduce the eco bins in UK market in a good aspect of time and make it available for the new users. In pricing objective, the company should go with market penetration tactics, which would be achieved by a strong promotional campaign. Setting discount package is a good idea and in-fact a perfect idea to begin with. The need would be to meet the competition in the very first phase of the business. 1. Pricing Objective Pricing is the primary function of a business, which associates with the rest of the functions in a considerable way. It is a process of product development, product enrichment and promotion respectively. In a business organization, pricing is a central function and if it goes on successfully, the rest of the business is with parallel results (Lan 2006). Pricing is the main element of marketing and holds the major role in developing a marketing mix strategy. In this process, the task is to establish a business position by promoting the product convincingly and tactfully in the market. Analyzing the market, focusing the customer’s perception, taking strategic decisions, estimating the demand and setting the right price for the product is how pricing sets up (Fifield 2007). This is the design of a stage wise process of “pricing”. The company is in the initial stage of product development and requires a deterministic marketing strategy to launch the eco bins effectively. For a new product to be launched, it is necessary that the product meet the needs and wants of the customers, this is how new buyers could be attracted, and the product will penetrate in the starting aspect of time (Kotler and Armstrong 2008). Primary objective would be to penetrate the market and develop all possible tactics to add value to the product. This would require a profitable pricing scheme which can deliver a plan set for achieving the objective. Deploying the starting promotional campaign at every site of launch would be part of the plan. It is necessary that 4Ps of Product, Price, Place and Promotion are in a stepwise order and implicated in the right direction (Moore and Pareek 2010). In the longer run, the secondary objective would be to stabilize the position of the company with a good reputation of available bins for the users. This will take time, but once a right price is obtained for the eco bins, the longer run objective would be achievable. Developing customer relationship and adding value to the product is part of the plan and should be focused at every step to develop repute for the company. This would require a marketing mix strategy in which customer’s perception and response are in the consideration. On the parallel side, competitors should also be focused and see how the company can sustain its position in the UK market arena. 2. Pricing decision Setting the right price in terms of value, profitability and customer’s perception are essential features of a pricing decision (Oxenfeldt 1973). In the start, the aim is to develop a positive customer perception towards such eco friendly recycling bins, which would be possible by value based pricing. The enclosure of eco friendliness and the green conception can be supplementary elements to add value to the bins. This would trigger a reason of how and why the price is right for the customer perception. Once the price is clicked, it would increase sales volume and certainly, a response would be noticed from the buyers. Cost and expense oriented (Technical Spectrum) A right set price would be which fits the product value, its initial demand and its ability to meet the customer requirement. For pricing eco car bins, the parallel subject would be to estimate the manufacturing cost and cost of distribution. For a 26cm wide and 20cm long bin, plastic is the main ingredient, which can cost up to 1 pound, for a 10 x 8 sq inch pattern. With a margin in material cost, we can fix a cost of 2.5 pounds in the material section, as two plastic bags are inclusive with the set. With the cost of manufacturing, labor cost with respect to China’s franchise and freight charges, a respective cost would be 2.5 pounds with a margin of cushion. Collectively a right set price in covering all technical aspects, 8.5 pounds would be a reasonable number. It would be economical and give a good range to build customer perception in the initial phase. The price can be deviated in terms of demand and market response. Once both get triggered, we can set it fixed for product stabilization and market enclosure. Demand oriented With demand perspective, the need is to focus on the target initially set. The company is focusing on 200 bins per month with 5 petrol stations on different locations, which means 12000 bins per annum if the response is according to the set target. The revenue in terms of selling all the bins per annum, the first price of 8.5 pounds would be “102000” pounds per year, which is quite a decent number in selling eco car bins in respective regions. Estimating the profits, 25000 pounds are the direct number, which is a per annum number after subtracting expenditure of advertisement and promotion. The long-term profit for the three year market share would be 75000 pounds, which is on preset sales target. Likewise, selling 200 bins per month and respectively 12000 bins per year will generate the direct profit of 75000 in the next three years period. With respect to profits and revenue, 8.5 pounds is a decent price and gives a feasible ratio to meet the preset price objective and respectively the long-term goal of three years. If the price needs to be subtracted, like if it is set for 7 pounds per bin, still the benefits are there in respect of profits and revenue. The additional cost of discounts would also be covered up in this price, as it holds the elasticity and can be deviated from 8 to 7 pounds for demand variation. If the response is good, the price can be set to minimum in order to add more and more customers for the eco friendly bin and once repute is developed, the price can be incremented to 8.5 pounds for product penetration and revenue generation at the same time. Competitor oriented An eco car bin is an exceptional product because it already carries an image of eco friendliness and green conception. The simplicity of the product can play an effective role in meeting the competitors in the region. Taylor international, Glasdon Inernational limited, Richbrook Refillable are three top competitors, which locate in the UK region. Recycling bins are there main products with several types and classifications. They are a bit expensive but still customers buy their goods because of their unique designs and patterns in the products. More of their goods also cover the style attribute, which is a complimentary thing in front of customers. Apart from Taylor and Glasdon International there are several other competitors too, but once a benchmark is set for top ones, the company can easily achieve the rest of the market share in considerable numbers. A focus on simplicity of the product can lead the bench for the company. The basic thing would be to establish a competitive advantage, which would require a strong marketing mix strategy. The characteristics of eco car bin can make it happen as the size of bins are quite handy and highly purposive to stack garbage and other thrash content. Second most precise thing is the price, very cheap and economical as compare to the respective competitors in the market. This will bring the attention of new buyers and can give a good competitive advantage to stretch more volumes. Discount offers would play an additional part in this stage and can provide a reason to penetrate the market progressively and effectively. This will give a customer driven strategy, where there is a competitive advantage plus a trust with the newly settled customers. ECO CAR BIN 3. Influencing on Pricing Decision Company Objective There are three main objectives of the company that should be met in the coming three years. These objectives are as followed: 1. The company wants to penetrate market of “Car Bin” in London city and focus of the company is to promote their business in the local petrol pumps of London city in next one year. The market segment of the company will be families having young kids below the age 12. After two years, the aim of the company is to expand business in other cities of UK in which the next step is to launch this business in Manchester and Bristol. The study conducted for this business indicates that competition is not tough in car bin business in UK and the company has margin to launch its product in more than 200 petrol pumps of London. 2. With the passage of time, the company will increase its profitability because this will help to normalize the pricing structure of people working with the company. The company aims to get two advantages after normalizing this pricing structure. One is consistently increasing the overall revenue in the third year, while other is to allow custom work to be done in less price sensitive market sector. 3. The third objective of the company is improving the overall administrative and production processes, and owner of the company will make sure that his involvement in simple administrative task is less and more focus is on marketing and sales task. New Competitors The competitor analysis is amongst the most important element in the corporate strategy of an organization. This analysis helps the organization to evaluate external threats and opportunities that result in increasing business of the organization. Most of the organizations do not prefer to perform competitor analysis in a systematic manner, but Eco Car Bin will perform competitor’s analysis in a systematic approach. It is important for the company to analyze future threats from the new competitors and for this purpose, the company has made a plan in which market survey will be held after every one quarter (three months). This market survey will analyze companies competing in car bin business, using the same technology to make car bin, targeting the market by making unrelated products, belonging from other region but making similar product, and startup companies made by previous employees. This will help the company to charge prices according to the prices of the competitors. If new competitors launches similar product with similar quality in low price, then company will decrease price of the product and will reduce its profit because it is necessary to maintain market share of the product. The pricing of the product will be dependent on the pricing of new and existing competitors because the company aims to offer penetration pricing in the first phase of the business. If the new competitors offer premium pricing, company will remain previous pricing in order to prevent new competitor for capturing market share from existing competitors. Suppliers and Distributors Two main suppliers of the company are Zhejiang Longbong Plastic, Co., Ltd and Taizhou Henming Plastics and Mould Technology Co., Ltd (Alibaba 2012). The main supplier of the company is Zhejiang Longbong Plastic Co, Ltd because they are offering better prices as compared to the other supplier. The main supplier is offering ?6/piece including freight charges, plastic bags, material and labor cost whereas the other supplier is offering ?6.13/piece (AliBaba 2012). The company will consider both the suppliers because if the capacity of Zhejiang Longbong Plastic, Co., Ltd goes below the requirement, then Taizhou Henming Plastics and Mould Technology Co., Ltd will be used as a secondary option. Moreover, company gives first priority to the quality of the product, and if quality will not be up to the mark, then other supplier will be used. The distributor of the company is British petroleum because this company is the best petroleum company of UK having most wide network of petrol stations all around the UK. In the first phase, collaboration is made with the management of British petroleum of London and an agreement has been made with them to sell car bin in more than 200 petrol stations of British petroleum in London. After the first year, the company aims to expand its business in other cities, and for this purpose, the management of British petroleum in different cities will be collaborated to make better business relationship with them. The price of car bin, profit margins and sales volume are decided mutually with British petroleum in order to avoid any conflictions in future. Cost The cost of car bin is dependent on different factors in which the main factor influencing price of the product is price offered by suppliers. If suppliers charge a high price for the product, it is evident that cost of the product is increased for the company. Similarly, if supplier charges low price due to decrease in the rates of plastic, then the cost of the product decreases as well. Therefore, in order to maintain cost of the product, it is necessary that there should be proper agreement with supplier so that cost of the product remains same for the company. Another important factor responsible for influencing price of the product is the freight charges offered to the company. The freight charges vary according to the trade agreements and laws of the company therefore, if freight charges increases then it will directly influence the price of Eco Car Bin. For consistent freight charges, company should make agreement with top freight forwarding company of China, which will ensure consistent freight rate. Some other factors influencing the price of car bin includes fluctuation in plastic rates, labor charges, and plastic bags. In order to minimize the effect of these factors on the cost of Eco Car Bin, agreements will be made with the suppliers for consistent prices of the product for a long period. Existing competitors The nature of competition in this business and the buying pattern of the customers can be measured by the customer loyalty, and word of mouth for the product. The customer loyalty and preference of shopping will be created by making trust worthy relationship with them. To become successful in this business, it is important that quality of product is maintained consistently because nature of this business is such that it is difficult to create customer loyalty for this product. The customer retention is difficult and switching brand is frequent in this business. The existing competitors in car bin business in UK are Taylor international, Richbrook Refillable Car Bin, Tidi Black Collapsible Car Bin, Henry Car Bin, Cartrend, Car Auto 2-way Garbage Bin etc. All these competitors are in this business for many years competing with each other, and the price of their products varies from ?4 to ?13 according to their size and quality (Amazon 2012). Comparing pricing of competitors with Eco Car Bin, price of eco car bin is low in comparison with quality of the product it is offering to its customers. The customers can buy car bins of different competitors from different parts of UK therefore, company aims to expand their business in different cities of UK, after the introductory phase of the business. Customers (Families) Eco Car Bin realizes the fact that marketing budget can only be used effectively if it reaches the selected target market. The advantage of target marketing is that companies can effectively utilize valuable resources. The target market of Eco Car Bin is the family customers having at least one kid. It is a fact that kids are responsible for making car dirty, and they often throw garbage inside the car, which can damage interior of the car. During travelling, parents often get irritated when they see their child throwing garbage inside the car therefore, this product is best suited for family people having more than one kid. After using this product, family cars will be less dirty, and there would be hygienic environment inside the car. Apart from families, this product is useful for people who like to travel different cities by car. Eco Car Bin is suited for all the people who love their cars and like to maintain a healthy environment inside their car. 4. Pricing Strategies  Market skimming In this pricing strategy, the price of the product is kept high at the initial stage for a limited period and then reducing the price. According to this strategy, the customers willing pay high amount for the product assuming that quality of the product is superior therefore, viewing it as a prestigious item. The advantage of this strategy is that companies are able to cover their start up cost more quickly as compared to other marketing strategies. This pricing strategy works well when the threat of short-term competition is low, and people are not completely aware of the quality and price of other products (Pride and Ferrell 2008). Eco Car Bin can use this strategy when aiming to launch itself in other cities of UK. After launching in London, the company will have experience and expertise to maintain quality of the product therefore, this product can be launched in other cities as exclusive quality product so that people will pay premium pricing for the product. This can help the company to recover its initial cost of launching product in new cities and after some period, regular price of the product will be charged to customers. For this purpose, the company will charge ?13.55 for Eco Car Bin in Manchester and Bristol so that customers will perceive Eco Car Bin as an exclusive quality product. After initial phase, the company will charge regular price to the customers, which is ?8.5. Penetration prices This pricing strategy is used when company decides to launch a product or service at a price that is less than the normal price. This strategy helps product or service to gain market acceptance and increases the present market share of the product. This strategy is useful to prevent new competitors enter in the market because they usually perceive this penetration pricing as a long-term pricing of the product. To gain market penetration, companies have to sacrifice their profits margins for a short period (Doyle 2008). Eco Car Bin will use penetration pricing in the initial stage of launching in London because it is necessary for the company to make its name in the market place so that people start to accept Eco Car Bin as a quality product with low price. Since normal price of the product is ?8.50, company will charge ?7.89, which will help to attract more customers. The company will minimize its revenue in the first quarter after launching in London, but after three months, company will start to charge normal price, which is ?8.50. Promotional pricing Eco Car Bin will adapt the promotional pricing strategy in different phases because it is important to provide different promotional offers to the customers to make them attracted towards the product. As part of promotion of the product, the company offer each BP petrol station 50 bins and set of eco-friendly bags free as part of the promotional campaign for first month. The other promotional offers will be based on low prices of Eco Car Bin in Christmas season, and customers will be able to buy this product for ?8.99. The customers will also be able to buy car bin for ?8.99 in the starting month of the business because the company wants people to get attracted towards the product by comparing price and quality with other products in the market. The company will use promotional pricing strategy on different occasions so that different target customers can be attracted in different seasons. Conclusion: It is evident that Eco Car Bin will be successful in London because people of this city prefer to buy quality products. After using this product, people will perceive Eco Car Bin as a high quality product with low price. In comparison with the competitors, Eco Car Bin is far better and superior product in term of quality and price. The company will use different pricing strategies in different occasions for the attraction of target customers and the company is hopeful that this product will take most of the market share, because of its high quality and reasonable price. List of References Alibaba, 2012. Taizhou Hengming Plastics and Mould Technology Co., Ltd. [Online] Available at: [Accessed 8 August 2012]. AliBaba, 2012. Zhejiang Longbang Plastic Co., Ltd. [Online] Available at: [Accessed 3 August 2012]. Amazon, 2012. Richbrook Refillable Car Bin. [Online] Available at: [Accessed 3 August 2012]. Doyle, P., 2008. Value-based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value. London: John Wiley and Sons. Fifield, P., 2007. Marketing strategy. Burlington: Elsevier Ltd. Kotler, P. & Armstrong, G., 2008. Principles of marketing. New Delhi: Pearson Education. Lan, R., 2006. Mastering marketing. London: Thorogood Publishing. Moore, K. & Pareek, N., 2010. Marketing the basics. New York: Taylor & Francis. Oxenfeldt, A., 1973. A decision making structure for price decisions. Journal of Marketing, pp.48-53. Pride, W. and Ferrell, O.C., 2008. Foundations of Marketing. Boston: Cengage Learning. Read More