In this report, the author will review the pros and cons of several pricing strategies and will provide in depth analysis of the two best pricing strategies for the new product being launched. A recommendation will be made for one of the two, and an explanation given for that recommendation. Finally, a Channel of Distribution strategy to support the recommended pricing strategy will be detailed.
The President of Mobile Manufacturing, Michele Dietrich, has clearly set the overall pricing objective in the given notes of the case study. In Michelle’s own words, Mobile Marketing needs to capture a significant amount of market share of the mobile phone industry through the launch of their newest product.
This objective rules out several pricing strategies that are aimed at niche or smaller markets. For example a pricing strategy aimed at early adopters – those that will pay a premium for the newest, latest phone – will enable a high mark up, but will only appeal to a limited number of potential customers. A strategy based on markup pricing would also not achieve the objective. In this strategy, the manufacturer determines a final selling price based on a markup that generates an acceptable return. While this guarantees an acceptable return on all goods sold, it does not guarantee a gain of significant market share. The same would be true of a pricing strategy based on target return pricing.
There are two viable approaches that might work however: Going Rate Pricing and Perceived Value Pricing. Both of these strategies appeal to the mass market of mobile phone customers.
In Going Rate Pricing, a manufacturer sets their pricing structure based on the pricing structure of the market leader. They might set pricing a little lower than the market leader, to appeal to the cost conscious customer hoping to get a product comparable to the market leader’s product, but at a reduced cost. Or a manufacturer might set their pricing a little higher than the market leader, to create the perception they have a higher quality product than the market leader. In the case of Mobile Manufacturing, they are not the market leader so this strategy could be used, but in only one way. They would have to price their structure lower than the market leader, not higher. Asking for a higher price would only appeal to a sub segment of consumers, not the large market share that is the set objective. The risk in setting the pricing structure lower than the market leader is that it is not set on your own cost of goods. That approach might actually yield a negative return or just a slight return that is not acceptable to the shareholders.
A final pricing strategy, and the one I recommend, is Perceived Value Pricing. In this strategy, the manufacturer uses all the elements of the marketing mix – brand identity, advertising, promotion, etc.- to create a perception of their product in the mind of the customer. Given that perception, then, the pricing is perceived as a good value for the customer. The customer now makes his decision on the merits of that product, relative to its features and benefits, rather than on a comparison of their product to the market leader’s product. Because we have a superior product, this approach will work.
I would also recommend a one level channel of distribution, with a pull strategy. A one level channel has the manufacturer selling directly to retailers, who sell to customers. This allows us to select the retailers who are consistent with the perception of our product that we have created. For example, customers have a totally different perception of products sold in Macy’s than products sold in Dollar General.
The pull strategy involves using our marketing mix elements to create a demand for our product at the consumer level. This is consistent with a Perceived Value pricing strategy. Our advertising and promotional methods create the perception our product is a good value, thus creating demand for the product. In turn, retailers are anxious to stock and sell our products to respond positively to the consumer demand for our product.
Kotler, P. (2006). Marketing Management. Upper Saddle River: Pearson.
Peter, P., & Donnelly, J. (2007). Marketing Management: Knowledge and Skills. New York: McGraw Hill.
Pricing Strategy. (n.d.). Pricing Strategy. Retrieved June 5, 2014, from http://www.netmba.com/marketing/pricing/
Pricing Strategies (4 p's) - The Marketing Mix. (n.d.). Pricing Strategies (4 p's) - The Marketing Mix. Retrieved June 5, 2014, from http://www.learnmarketing.net/price.htm