Introduction on Pricing Strategies
As we all think at times and ask ourselves, how did Wal-Mart become the world’s largest retail chain? Or why is Apple the most valuable technology company even with high priced products? First companies have to understand their market and strategies according to its demand and income level, regardless of whether they intend to offer their products at a low-price or high price. What do you think of when you hear the words “Pricing Strategy”? One of the four major elements of the marketing mix is pricing. A pricing strategy refers to the method companies used to price their products or services. Pricing strategy being with a market analysis of what the ideal product price for a given product of service should be. Either if the business is small or large, they base their products or services on production, labor worked, and advertising expenses. Once these prices and totals are established they then add on a certain percentage to generate a profit. When dealing with pricing strategies it tends to be one of the most critical components of the marketing mix. It cost to produce and design a certain product, and it cost to distribute a product and cost to produce it. When a company chooses a pricing strategy they dramatically impacts the profit margin of their business, and it also determines the pace at which the business can grow.
Why does the price of a product change?
Companies need to make changes to improve their bottom line
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Sam Walton’s extraordinary business strategies drove Walmart to its success and their key focus was customer satisfaction. As part of their customer centric initiatives Walmart had set up a unique pricing strategy with their “Every Day Low Prices” EDLP (Karen Robson, 2013). They would offer customers their daily needs at the lowest possible price to drive Walmart’s growth in the United States (Karen Robson, 2013) . Their pricing strategy was different than other major retailers in the U.S at the time; this provided an advantage towards rapid success and expansion (Karen Robson, 2013).
The price strategy defines the initial, base price and the appropriate strategy depends on the pricing objectives. There are three basic pricing strategies for pricing a product or service: price skimming, penetration pricing and status quo pricing. Effective marketing involves the price being set to equal the perceived value of the product, a backpack, to the target market, university students. The following sections discuss the alternative pricing strategies, the advantages and disadvantages of these and the most appropriate strategy for a new backpack entering the market.
With any pricing strategy, the price must match the branding of the product. For example, for a luxury item branded product, the price needs to be higher to coincide with the branding perception. A few pricing strategies to focus on include product cost based strategy, customer-focused strategy, and product life-cycle strategy. The distribution strategy also plays a crucial role in the successful implementation of a new product. Furthermore, MM Inc. needs to determine what distribution channels will have the greatest influential means to market and sell the new product.
The development of the Internet and more specifically the business website has seen brand recognition by consumers escalate to never before seen heights. Because of this brand recognition, it has become important for businesses to design their websites to reflect their overall marketing strategies. This is especially important in the retail world. All retail businesses have a similar overall marketing strategy of generating sales and retaining the customer for future sales. Most of the retail giants still greatly rely on the success of their brick and mortar stores to turn a profit. However, internet sales for these brick and mortar stores have increasingly risen over the last few years to compete with the retail stores like Amazon that are strictly internet based businesses. Brick and mortar retail stores, such as Walmart, Target, Kmart, and Nordstrom, have each designed their websites to reflect the overall retail marketing strategy as well as the individual marketing strategies that have made their brick and mortar businesses successful.
Walmart is the biggest retail chain in America (Isidore), and if Walmart were its own country, it would have the 23rd largest GDP on the planet (“Walmart”). In fact, Walmart not only has more sales than second place retailer Costco, but they have five times their sales (“Walmart”). Yet, their overall impact is found to be negative. How is this possible? Well, after some thorough investigation and research the answer becomes blatantly obvious. Whether it is financially or economically, Walmart has not had the overall positive effect it was meant to contribute to our society.
In Robert Greenwald’s 2005 film, Walmart: The High Cost of Low Price, he along with other political activist opposes the rhetoric of Walmart’s CEO, Lee Scott, to the experiences of current Walmart employees, both in the United States and internationally; small town business owners, shoppers, and community activists. The film opens up previewing an audience of Walmart employees at a convention cheering on Lee Scott as he proudly states “It would be a pleasure for anybody to be the CEO of this company. . . . You get to say we had record sales, we had record earnings, we had record reinvestment back in our company” (Greenwald, 2005, 0:50). The statement gave the impression that he was going to praise the work of employees for their contribution
The five generic competitive strategies are low-cost provider, broad differentiation, focused low-cost, focused differentiation strategy, and best-cost provider strategy. According to the textbook, “a company’s competitive strategy deals exclusively with the specifics of management’s game plan for competing successfully” (Gamble, 93).
Wal-Mart is known as a huge merchandiser company, and is known as the world’s largest retail store. It has “managed more than 11,100 stores in more than 27 countries to this very day, and has a huge market cap of more than 275 billion dollars”(http://marketrealist.com/2015/02/analyzing-walmart-worlds-largest-retailer/) , ranking amongst the top ten companies in the world. If that doesn’t throw you over the top, I don’t know what will! It is one of the only retailer stores that has a wide variety of items pertaining to their customers with items such as groceries, entertainment gadgets, pharmaceuticals, auto parts, hardware, home items, clothing, and many more. With that being said, Wal-Mart is a world-leading brand with its enterprise and
Wal-Mart — the world’s largest, most dominant retailer and private employer. Established a highly profitable business centered on a low-cost strategy and utilizes logistical efficiencies to create a competitive advantage.
Customers influence Wal-Mart by buying their products. However, Wal-Mart doesn’t provide arm security on the parking lots which has cause to many incidences such as shooting, raping and kidnapping.
The traditional Wal-Mart is the one that all consumers have come to know and love in their communities. What is the first thing that comes to mind when one thinks of Wal-Mart? One stop shopping, a place where a consumer can get it all, clothes, food, shoes, and electronics. The list is vast because Wal-Mart carries many types of items. Wal-mart has the items and the pricing is reasonable. The local Wal-mart is also convenient because they are twenty-four hours, seven days a week and open on holidays. The lights are continuously on at Wal-Mart. It meets the fast pace of society because of the one-stop experience. Hence, this is the reason competitors refer to them as monopolist because they dominate every aspect of shopping in the experience. Furthermore, they have built a reputation for catering to their customers through their strategic marketing plans like price matching, layaway and more.
Price interacts with all other elements of the marketing mix to determine the effectiveness of each and of the whole. The objectives that guide pricing strategy should be a subset of the objectives that guide overall marketing strategy. Thus, it is probably wrong to view price as an independent element of marketing strategy or to assert that price, by itself, is a central element in the marketing mix.” (Webster, 1979)
Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).