Published on July 30, 2009
JAY MODI Marketing Missouri S&T Cereal Company Marketing View for Product Costing and Pricing Case Report Business 423 Prepared by: Jay Modi March 9, 2008 1
JAY MODI Marketing Missouri S & T cereal is in the market where there are three existing competitors (Company X, Company Y, and Company Z) and three new competitors. The demand for cereal in Hamburg, Germany is moderate and the number of customers in the market is few. As the products will be differentiated so entry and exit for the firms will be difficult. Even most of the firms in the market are interdependent in fixing the price in order to accrue greater revenue and market share. Adding to it there will be usual information to buyers and sellers about the product. So after taking into all this points Missouri S & T cereal found itself in the Oligopoly market. As there are few competitors in the market, our company is going to target the ‘niche’ market by offering the unique variety of cereals with different product mix. Several other reasons which make our company competitive are: • Skimming Price-- Our target market is ‘niche’ market, so we are charging little higher price than our competitors. The details of Missouri S & T cereal’s price as compared to competitor is in appendix 1. • Standard packaging—Even our company has invested higher amount for packaging the products. It will help the company to position its product and differentiate the same from the competitor. Based on the new information available our company has proposed several additional business strategies which include: • Higher pricing than competitors: As we are charging the skimming price in Independent stores where customers are less price sensitive, so our price will be little higher than the competitors. 2
JAY MODI Marketing • Unique price for each distribution channels: our company is offering skimming price for Independent stores and Cost-plus pricing for Grocery chains. • Our main focus is on Grocery stores it has almost half of the market share and offers cereals in both the quantities. Even the reaction of customer towards price and advertising is neutral we are flexible to change the price based on the market demand. PRODUCT COST STRATEGIES Our company is following ABC costing. If we focus towards the marketing side, there are two major cost drivers in the product cost; Advertising and Packaging. • Advertising: - The advertising cost is fixed cost for all the products as in the single ad we are going to advertise all our three products. • Packaging: - The packaging cost is variable as the type of packaging done for Strawberry flavor differs from the packaging of Nuts and Raisin flavor. PRODUCT PRICING STRATEGIES The pricing strategy followed by our company is different for both the distribution channels. 3
JAY MODI Marketing Quality Low High L Cost-plus o w P Grocery Chains r i c H Skimming e i g Independent Stores h PRICING STRATEGIES MATRIX Our company is going to follow the skimming pricing strategy for Independent stores because of several reasons like: • Demand of our product in Independent grocers will be inelastic as customers are less sensitive to price. • Our company does not have the resources to finance the large capital expenditures, so skim pricing is the right choice for profit maximization which can be used to carry high volume production. Our company is going to follow the Cost-plus pricing strategy for Grocery chains. In this method our company arrived to selling price by the percentage of profit with the cost of producing the product. Our company is going to follow this strategy for Grocery chains because it is enjoying several benefits like: 4
JAY MODI Marketing • Demand of our product in Grocery chains will be elastic as customers are high sensitive to price. • As we are offering both, large and small box to Grocery chain so it will be easy to determine the price. PROPOSED PRODUCT PRICE FOR DISTRIBUTION CHANNELS: INDEPENDENT GROCERS GROCERY CHAINS Large Box (€) Small Box (€) Large Box (€) Small Box (€) Strawberry X 5.02 X 4.78 Nuts 5.99 2.99 5.55 2.79 Raisin 5.94 2.96 5.63 2.81 As our company is targeting the ‘niche’ market, so our prices are little high than our competitors and by adapting different pricing strategy for both the distribution channels we are focusing towards higher market share. We have taken into consideration various internal and external factors while determining the pricing strategy. Our internal factor includes marketing mix (4Ps), marketing objectives and total costs while an external factor includes competitors pricing strategy, customer’s value to the product and Government regulations. Reference: http://www.netmba.com/marketing/pricing/ http://www.marketingteacher.com/Lessons/lesson_pricing.htm Principles of Pricing – Robert Dolan, John T. Gourville, Harvard Business School 5
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