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To be able to understand how the four types of market affect pricing decisions we must first look at the factors considered when setting prices. As per discussion in class, competitors; consumer perception of price and values; market and demand all together contribute to the pricing decisions. According to the study of Economics these factors are present in the four types of market: Monopoly, Oligopoly, Perfect competition and Monopolistic competition.
In monopoly, where there is only one provider of a product or service, the company controls the pricing decision. Seeing that there is none, if not limited, existing competition in the market proves that the company is not dependent on the pricing decision of other electricity service suppliers. A common local example would be Meralco, although there are other electricity providers outside Mega Manila, Meralco is still considered the largest and the most income generating electricity supplier in the country. Being the largest assumes a big bulk of the population demanding and relying on the services it provides, there is not much choice left for the consumers but to patronize Meralco, in effect the charges that the company asserts (under the government’s approval) will always be assimilated by the consumers. The unavailability of other options gave them the position to take control of the pricing of charges.
In oligopoly the market is shared by a small number of producers or sellers. Since it is dominated by a small number of sellers, each one is mindful on the act of the other and decisions of each other firms influence one another. There is a concern on the reactions or responses of the other sellers in the markets thus the pricing decision is thought of carefully against the competitor’s pricing decisions, it now becomes dependent on the other participants in the market. The local examples are the prominent landline telecommunication service suppliers such as PLDT, Bayantel, Digitel and Globelines. Based from observations on ads and promotions every time one seller initiates a call charge reduction the other sellers automatically follows the trend. The whole idea in this kind of market is that firms are actually after price decrease, with the hope of gaining a bigger share of the market. Either pricing decision indicates a decrease or increase all actions will create a price war response with other sellers.
A perfect competition market describes a market setting wherein the buyers and sellers are so numerous that the market price of commodity is no longer in control of either the buyers or the sellers.
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A monopolistic competition market is similar to that in a perfect competition in terms of numbers of producers and buyers only with the exception of heterogeneous products. In this type of market producers have a control over the price, producers can increase or decrease their prices due to product differentiation. An example would be differentiated products like toothpastes in the local market we have Colgate and Closeup. The pricing decision is influenced by the different attributes the product offers such as the packaging, brand image, physically composition or it’s over all advertising value. When for instance Colgate offers a whitening toothpaste the value will be higher than the ordinary toothpaste offered by Closeup because of the new innovation in toothpastes.
Pricing strategy is usually crucial during the introduction phase of the product, there is a hard risk of getting accepted or not. It is compelling to understand that the right pricing strategy, together with right product and marketing plan, will make the business earn revenues and fair market share. As discussed by Kotler, there are two new-product pricing strategies: Market-skimming pricing and Market-penetration pricing.
The concept of Market-skimming pricing is to glance through the market segments layer by layer to achieve maximum profit through the maximum price that each level will support. In the end the company produces fewer products while gaining more profitable sales. The best cited example is seen in the computer industry. Whenever a new laptop computer is introduced in the market it is always at it’s most expensive price, at this stage it targets the can-afford segment that has a demand for laptop and is willing to spend much for it. As the laptop gets older and precedes to the stages of its life cycle (growth to maturity to decline) the lower the prices become skimming to the next layer of target buyers.
The benefit of using price skimming is achieving the maximum profit from the segment it targets. This strategy will work if there is a large market of good buyers and at the same time high demand for the product or service. In the technology environment there is a great demand for laptops and there will always be good buyers and recurring buyers in unison it also has a low cost structure.
The Penetration pricing on the other hand sets the product at its lowest price during the introduction phase. This is used in order to penetrate the market quickly, expecting a large number of buyers and gain in an instant a significant market share. Aside from just penetrating the market too briskly it also aims to break down existing brand loyalties and in most cases creating valuable word of mouth. Convenience products are the best example; during the entry of Charmee sanitary pads its introductory price is less than half the price of the dominant sanitary pads in the market, which are Whisper and Modess. Since it is economical consumers became attracted to test the new product and as we can see today Charmee has been widely accepted by the consumers.
In penetration pricing it usually attracts the attention of the switchers, those who are easily swayed and enticed by new products. The good thing about this strategy is the instant awareness it draws from the consumer while competitors are actually hindered to also penetrate the market. However, the drawback in using this strategy is the price expectation from the product, it may also send a preconception on the image brand or the company. It will cause difficulty to eventually increase in price. This is most appropriate to use for the mass market, where appeal can easily be established through low pricing.
The main concern that should be valued when deciding which strategy to use is the target consumers in what segmentation are they in. The buyer’s behavior is another factor to be considered as well as the competitor’s reactions. Understanding the market should always be the foundation in building a strong pricing strategy.
When producers aim to grow their business the first step they look into is expansion of service / product reach. This is where distribution channels come in, producers tap intermediaries that would perform the works of bringing the products and the ownership closer to the end-users. These intermediaries come in the forms of wholesalers/retailers, agents and business distributors. This chain established an assurance that products will readily become available for the final consumers in different areas.
Kotler discussed the very basic value of distribution channel to producers is the way it bridges the gap in terms of geographical, time as well as possession disparities. They become in charge of the personal and physical distribution. Aside from this, intermediaries do the extra work of marketing research and gathering of information to support market planning and aiding exchange. Intermediaries also assist in promotions by persuasive communications about the product as well as getting in touch with prospective buyers. In effect, marketing channels are effective method of ensuring efficiency in making goods accessible to target markets. Sparing producers of the hassle and the risk that comes along with distribution.
Advertising strategy is developed to communicate ideas about products and service to prospective buyers in the hope of persuading them to take on these products and services. The major goal of advertising is to ensure awareness of the business and the product is established, with that sending the right message to the right people is very vital. Through creating a message and selecting the advertising media, the two elements of advertising strategy, it will provide the basic steps on how to create and send the right message.
When creating the advertising message, strategizing how the message should attack is initially regarded. It must automatically gather the market’s attention and interest so a plain and forthright discussion of consumer benefits is the way to go. Appeal of the message is the next step, this is where narrating of consumer benefits comes in then it must make these benefits believable to the consumers and lastly uncover the distinctiveness of the product against the competitor’s. Messages should be compelling to serve the purpose of engendering product awareness to the market.
Selecting the media is all about understanding the reach, impact and frequency of the message against the advertising objectives. Also, assessing the appropriate media type where the message would meet the premeditated reach, impact and frequency. The major media types are television, radio, newspaper, magazines, outdoor and the Internet. Kotler stressed that most advertisers actually prefer a media that would engage the consumer rather than just reach them. The media planner must take account the different needs of the messages so to know how it will be efficiently treated, for instance a Colgate commercial targeting kids. Since commercials for kids are seen/known to be bright, colorful, with characters and mostly in musical type it is best to air this in television where vibrant colors of characters could be shown, this will draw children’s attention in haste thus reactions from the consumer arises.
Overall I personally attest that the message is the very core when establishing product awareness, it therefore play a more significant role. If messages are constructed strategically it will make it’s content resounding to the consumers on its own, possibly not to the intended consumer right away but a well formulated message translates into garnering expected reactions and feedbacks from consumers. Besides the very reason of advertising is to create consumer awareness and awareness is gained when someone starts to make a noise.
Of course media selection is important when delivering the message to the target market however it plays an assisting role. I do not negate the importance of having the appropriate message carrier going to the consumer, in fact I believe when gauging the number of intended reaction from the market, there will be plenty when there is an appropriate media used. To simply summarize, the message is the core while the media is the added-value outlet of the core. For without the message, there will be no awareness to begin with.
The consumer product is Century Tuna.
Consumer promotion tools
Samples – Century Tuna binagoongan would be out in the market this coming December, to get the market aware of the new flavor of Century Tuna I will require a free taste of the goods in all leading grocery stores nationwide.
Price packs – This upcoming holiday season I would encourage consumers to buy two 200g Century Tuna products for the price of one. This is also aid in promoting the new binagoongan flavor Century Tuna by pairing it with either Adobo, flakes in oil or hot and spicy.
Contests – Since Century Tuna is known to be a healthy product, not only for the heart but also for maintaining a fit body. 3 days / 2 nights roundtrip ticket for two to Boracay in Discovery Suites Hotel (plus pocket money) awaits the Grand Prize winner of Century Tuna raffle contest, consolation prizes include 1 year free membership in Gold’s Gym and membership in wakeboarding in CWC. Other prizes include 1000 cellphone loads and 500 peso cash.
Coupons – This will be possible through collaboration with the grocery store promo. By participating in the promo a purchase of more than 5 Century Tuna products entitles a consumer to a 50% off on any Century Tuna product on her next visit. Another option is when a consumer reaches a P2000 receipt he/she will automatically receive the 50% off voucher.
Advertising specialties – On the month of February, Century Tuna products will come up with a slogan encouraging families to add century tuna to their daily diet for a healthier heart. There will be free t-shirts for the first 25 costumers achieving P150 worth of Century Tuna products in every leading grocery store nationwide. There will also be free pens and pencils with the slogan printed on it.
Trade promotion tools
Display allowance – retailers who used special displays of Century Tuna products will be given 20% off for the first 10 boxes/cases of Century Tuna. This is in exchange of the agreement that displays of the product will be in sari-sari stores and in provincial grocery stores.
Specialty advertising items – lighters, paperweights, coffee mugs and notebooks with Century Tuna logo will be given to retailers. This will be done during the holiday season or every after 6-months.
Push money – Gift will be given to retailers as well as to owners of grocery stores to establish a good relationship between the manufacturer and those in charge of product placement in the shelves.
Since Century Tuna is a prominent brand of goods in the country, a fairly big amount is allocated for its promotion and advertisement for the holiday season and the entry of the new tuna binagoongan flavor. There is also a allocated budget quarterly good for it’s monthly advertisement and nationwide promotion.
After 3 months of the trade and consumer promotion campaign, there will be an evaluation if whether there is an increase, decrease or break even in sales. The comparison will be before, during and after the campaign period. This is also a way to understand which among the products is greatly being patronized by the consumers and assessing whether the entry of a new product has been widely accepted by the market. The sales after the promotion period can help assess whether Century Tuna has established a customer relationship.