To set a pricing strategy, there are number of steps taken into consideration as follows:
Step 1: Our pricing objectives are to maximize market share and increase sales volume. This strategy will be used when TrackR is being launched into the market. We charge a reasonable price in order for TrackR to be accessible in the market as quickly as possible and also to encourage the interest and excitement of a product. Because of the low price, we are able to raise the sales volume easily, maximize the market share and reach the economic of scale as soon as possible. In order to boost the sales even more, we will offer promotion followed by the product launch, which will later be discussed in the later section. Eventually, we can penetrate the market and create brand awareness.
Step 2: Being a monopoly of TrackR, we have a sole power of controlling price and quantity, but before we set a final price, we must observe the demand. TrackRcan be classified as normal goods for specific groups of people. While the price remains unchanged, people tend to buy more normal goods when their income increases and they less likely to buy normal goods when their income falls. TrackR is price elastic meaning consumers are responsive/ sensitive to a change in price. If we decide to elevate the price of TrackR, the quantity demand will be declined.
Step 3: We also need to estimate the costs associated with TrackR. All costs can be broken down into 2 categories; fixed costs and variable costs. Fixed costs include salary, rent, PR and promotion and sales promotion, which come down to 3 million baht per month while the variable costs comprise of unit cost, shipping fee and exchange rate which are 375 baht per unit.
Step 4: Analyzing competitors’ costs, prices, and offerings. Our competitors can potentially be online retailers, for example, eBay or Find my iPhone.
Find my iPhone
$25 ~ 800 baht
No additional cost
Shipping fee + duty
No after sales service
Apple products only
We divide our consumers into 2 segments; B2B and B2C so we will use different strategies to different potential buyers. For B2B buyers, we will sign a contract and sell them over a large volume at a reasonable price range regarding the numbers of unit purchased. By having cost advantages over competitors as you can see on the previous slide, we are able to build up a barrier protecting us from new entrants entering the market.
On the other hand, as we aim to achieve our objective of increasing the sales volume, we set an affordable price making it accessible to B2C consumers so we can increase the sales volume and eventually achieve economic of scale.
We begin using value based pricing approach for both buyers, which sets prices primarily upon the value perceived/estimated by the consumers rather than the costs of the product. In other words, value based pricing is a valuation of good or service according to how much consumers are willing to pay. We have done a market survey to see at what price consumers would like to spend. It could be somewhat arbitrary but it greatly assistances in an effective marketing of product in understanding impact of good or service has on consumers.
We then use break-even analysis, which represents a point at which total cost and total revenue are equal: there is no loss or gain at this point. It purposely uses to determine the minimum output that must be reached in order to make a profit. It is a rough indicator of a marketing activity and also provides a dynamic view of relationships between costs, sales and profits.
We also use quantity discount for B2B purchaser, which is an incentive offered to our potential purchasers resulting in a reduced cost per unit of goods when acquired in a greater volume. A quantity discount will be proposed to tempt our buyers to purchase in larger quantities. Step 6: Now, we have come down to a conclusion of TrackR’s final price. Here are the base prices for both B2B and B2C buyers.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 25 September 2016
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