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Custom Pricing Strategy and Channel Distribution essay paper sample
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This paper is going to address the marketing plan for Wimsy Iced Tea Company. The topics to be appraised are; the pricing strategy to be used, pricing tactics, legal and ethical issues related to the pricing tactics, marketing distribution channel identifying the wholesaler, distributor and retailer relationships. The paper will also explain how the distribution strategy fits the product, the target market, and overall objectives for the company.
The company is going to employ penetration pricing strategy, as it gets into the market. Penetration pricing strategy is employed when delivering a new good or services in the market. It involves setting the initial price relatively low with the aim of penetrating the market and securing significant market share. The entry price is usually lower than the eventual market price to attract customers (Benum & Top, 2008). It is a strategy that is used on the products with good quality, but which stands to face competition. It works under the expectation that the low price will entice customers to switch to the new brand.
This policy is wise when those willing to pay a high price are few; a case when the demand curve of then product is viewed as fairly elastic. The quality of the iced tea is good and it is expected to appeal to many customers in this region. The company is expecting that it may face competition in the future when other suppliers enter the market, but it will have gained the loyalty of consumers by that period (Lamb, Hair & McDaniel, 2007).
Penetration pricing is considered as a better option because the iced tea is expecting stiff competition after an introduction to the market. It is very attractive because the firm will be able to market the product in large quantities at lower prices and enjoy economies of scale. The Wimsy Iced Tea is also expected to be suitable for mass demand to allow the profits to be recovered by selling many units (Benum & Top, 2008). Products that are mass produced will lower the cost per unit, also use this strategy successfully. This strategy discourages entry to the market by other competitors. The company will decide whether to increase the price of the product once it has secured the desired market share.
Penetration pricing is expected to result in various positive impacts on the firm. The policy can lead to diffusion and adoption, thus achieving high market penetration rates faster, which can get competitors unaware giving them little time to react. Penetration pricing can also create goodwill among those who adopt using the tea at the early stages that can result to increased trade through the customers sharing their opinions with other possible customers. Sales are also increased since persons who buys at a lower price will buy a related high-priced product out of convenience. Using the strategy at the entry to the market, it will improve the firm’s ability to control costs and cost reduction pressures from the beginning, thus resulting to greater efficiency (Lamb, Hair & McDaniel, 2007).
A firm needs to attract loyal customers to keep its operations secure. The company is planning to use value pricing strategy to achieve this goal. Customers will buy an item at a higher price if they perceive its value is higher. This is not an in built attribute of the product, but it commands a higher cost (Lamb, Hair & McDaniel, 2007). Value as a benefit is subjective and varies with customers. A benefit to one customer may not necessarily be a benefit to another customer.
It has been established that customers are value conscious rather than price conscious. For instance, some customers are willing to pay extra for installation or prompt delivery. On other hand, there are some customers attach personal value to a product or service. The pricing of the Wimsy Iced Tea will be based on the customers’ perceived value rather than the sellers’ costs, once the product has stabilized in the market (Benum & Top, 2008). Customers usually evaluate competing products by comparing their value. Reducing the prices may not attract customers, like increasing the value of then product does. Adding benefits and reducing the perceived risks are ways of increasing the value of products. This value pricing strategy will be used in a stage where the Wimsy Iced Tea has built a strong brand identity. The firm will make features and benefits that are unique to our product and ones that cannot be duplicated easily. These features will be low cost and able to create economies of scale (Benum & Top, 2008).
Legal and Ethical Issues Related to the Pricing Tactics
Free markets do not exist and companies cannot change rules at their will. Marketing ethically means meeting the needs of customers, suppliers and partners. The company cannot put its prices very low because this will be termed as anticompetitive, which is considered as unethical.
Distributors provide access to customers if well managed and this can in turn influence the firm’s reach, profits and growth potential. Productive channel relationships contribute to organizations’ increase in sales, improve customer reach and reduce operating costs (Rosenbloom, 1991). An effective distribution channel management is required for all players to reap benefits because the product is expected to capture a large market share.
The firm aims at ensuring that the product has reached the customers and stayed in the market. The loyalty of customers is central to the success of the business and is an aspect that needs to be addressed if a business is expecting to grow (Rosenbloom, 1991). The firm’s marketing objectives are reducing production and distribution costs, reaching customers and keep competitors at bay. The distribution channel fits well to the product, the target market and the firm’s objectives.
Proper management of the relationships along the distribution channel will reduce the drain of supplier resources and be an asset for the long term growth necessary for the business. The objectives and incentives will be properly aligned to avoid conflicts and ensure a well fit relationship (Bangs, 2002). This will enable the success from the onset. This good relationship will enable the product to reach end users and allow the firm to communicate to the customers effectively, thus leaving no room for competitors.
The strategy is aimed at consolidating the market leadership targeted by the pricing strategy used by the firm at the entry level. The company’s value and the image is also expected to develop, thus leading to generation of additional revenue streams, which are key to organic expansion of the business (Bangs, 2002). The company will be in a position to address the changing needs of its customers and contrast competition, an important aspect in gaining market share. The company will also be in a position to inverse trends of margins erosion and share costs among its business.
Distribution optimization will allow the firm to remain competitive and reach customers at their preferred locations and achieving these goals at a profit. Maintaining good relationships between wholesalers, distributors and retailers are important factors in fuelling growth (Bangs, 2002). A comprehensive analysis of the firm’s distribution channels is necessary in order to create strategy options and plan for the optimal distribution strategy.
Wimsy Iced Tea Company is a new player in a stiff marketing field. Therefore, the above marketing strategies for Iced Tea can be very successful if they are implemented appropriately. These marketing strategies are aimed to enable the company to penetrate in the market, build customer loyalty and conquer the big giant in the market, thus making it to be a leader.
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