Price Setting Strategy - Assignment Example

Part 1. Price setting is often regarded as a complex multi-step approach that takes into account various elements such as the external environment, demand for the product, competitors as well as internal elements like operating costs. As such, this paper seeks to evaluate the price mechanism that is used by Kentucky Fried Chicken (KFC), an international fast-food restaurant that operates in more than 80 countries. The paper will discuss the benefits as well as challenges that are faced by the company in its pricing mechanism.

The main strategy used by KFC is product line pricing. According to Kotler & Armstrong (2010), this strategy is related to setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features and competitor’s prices. In this case, it can be seen that the fast food industry is comprised of competition where players such as Mcdonald's also compete with KFC. It can be noted that KFC is a price taker since it cannot set prices that are above those charged on different product lines.

Mohr (2008) posits to the effect that in a market that is characterised by perfect competition, price discrimination is possible where the same product can be sold at different prices. Essentially, the price marketing employed by KFC is market-oriented since it is influenced by different market forces that are obtained in the environment in which the organization operates. This point is supported by the “Chairman of the local Kentucky Fred Chicken (KFC) business who believes that poultry pricing should be left to market mechanisms,” (Poultry News, 2009). 2. The main challenges that are faced by KFC in its pricing mechanism are related to the aspect of competition and currency fluctuations in different global markets.

According to Hu & Xie (2013), the aspect of pricing plays a pivotal role in the performance of KFC in its operations. For instance, McDonald's is a renowned fast-food restaurant in different parts of the globe and its prices also impact the pricing mechanism that is employed by KFC. In some instances, KFC uses the strategy of price cuts in response to the price mechanism that is used by other competitors in the same industry. This strategy is very effective since it helps the company to retain its customers as well as to attract new customers for its products.

However, the main challenge likely to be encountered in adopting this strategy is that losses can be recorded if the procurement price for chicken is higher than the revenue that will be generated after selling the final products to the customers. The other challenge for KFC is that it faces currency fluctuations in different parts of the globe where it operates therefore it cannot set uniform prices across different countries. Therefore, it heavily relies on the market mechanisms that exist at a particular period in a given country when setting the price for its products.

Part 2 KFC uses an exclusive distribution strategy in its operations. According to Kotler & Armstrong (2010), exclusive distribution is described as a situation where the producer only gives a limited number of dealers the exclusive right to distribute its products in their territories. Apart from distributing its products through company-operated stores, it can be seen that KFC also uses franchisees to distribute its products to different customers. The company also uses licensees which can use its brand name to distribute various products to the targeted customers.

This strategy is very effective since it helps the company to attract as many customers as possible in different territories where it would be operating. The company is visible and it is also present in many places which makes it easy for the company to distribute various products to the targeted customers. The company also has drive-through restaurants which are convenient for customers who want takeaway. According to Hu & Xie (2013), KFC’s performance in China is better than McDonald's as a result of the logistics and distribution mechanisms it uses to fulfil the needs and interests of the customers.

Part 3 KFC uses different forms of media to convey its messages to the targeted customers. The company uses an integrated marketing communication system (IMC) to reach its customers in different parts of the globe. Media such as print, radio, television and the internet are used by the company to disseminate its messages to different targeted customers. Other strategies such as personal selling, promotion, public relations and advertising are also used by the company to reach different people.

The message presented on the company’s logo is “Eeatcookdream.” This message is designed to appeal to the interests of the targeted customers such that they can attach value and quality to the products offered. The logo of KFC is also emblazoned with the picture of Nelson Mandela, the first black president of South Africa. Mandela is an icon and celebrity and it can be seen that KFC seeks to create a strong identity through associating with people who are held in great esteem across the whole globe.

The only change that can be made to the message is to include some of the best products offered by KFC so that the customers can easily get the knowledge they may want about the products offered by the company.