Marketing strategy and management - Coursework Example

MARKETING STRATEGY AND MANAGEMENT substitution a) The experience effect of a production process is calculated as The difference in unit production cost at different production levels divided by the difference in units.At production level of 1000 units, the unit cost = £1646At a production level of 2000 units, the unit cost=£1517Thus, the experience effect = (1646 - 1517) / (2000-1000)=0.129At the production level of 160,000 units the unit cost is given by X, as followsX = Real cost of the nth unit x (cumulative number of units) -­ (experience effect)= 3700 x 160000 -0.

129= 3700 / 6.314= £585.99From the figures above, it is quite clear that as the number of units produced increases, the production cost per unit decreases. The production level of 160000 units exhibits a lower level of unit cost. This is due to the fact that the fixed overhead costs in the production process are constant even as the production level rises. The major implication of this is that the company may choose to reduce the price of the product for different purposes such as to undercut the competition from other producers of the same product.

The company will consequently be able to strengthen its market position as this cycle is repeated. However the pricing strategy based on the experience curve effect of the production process should not be infinite. This means that the pricing strategy should not be based on the maximum production level. This is mainly because at the maximum level of production, the company will not be able to increase its output. Price should thus be set on a production capacity that is reasonable, for example 70 or 80%.

There are very many reasons why a company would chose to use the experience curve effect for its market pricing strategy. This is because of the various implications it has on such strategies. The experience effect helps a company to attain a larger market share and this enables the development of a cost advantage. By using this curve to develop a marketing strategy, the company sets a price that it deems fit to the product and that will offer competition to other products in the market .The use of this curve also forces a company to improve its efficiency and effectiveness so as to reach the production level from which the experience effect has been calculated.

There are however few discrepancies that are associated with the use of the experience curve. For example, the curve effects apply to real costs and prices only. This means that in situations where this curve is used, an index or notation must be formulated. This particular index renders prices and costs exhibited at different time periods on a platform or a basis that is comparable. The consequence of this is that the index may consume a significant portion of the profits accumulated after production and in the process; the experience effect is washed out.

The second argument against the use of the cumulative curves is that it does not apply to calendar time but only to the cumulative experience.The company should therefore take into consideration all these factors when determining whether to use the experience curve effect in its marketing strategy .It should however be noted that the benefits of its use far outweigh the disadvantages or criticisms and this is the main reason why it has been very popular with many business managers.