Penetration Pricing Strategy

Penetration Pricing Strategy

To create and develop a sound pricing strategy in line with the demands of the target market segment, it requires proper market analysis before segmentation and positioning takes course. As a perquisite to their pricing strategy, distribution and promotion tactics development insured the success of the promotion bid as a security factor to the entire marketing process. Managers have the opportunity to design innovative pricing models that meet the needs of both the firm and its customers in an efficient manner. To achieve this, the organization sets a product price to levels adequate to achieve a target return-on-investment. Therefore, to market their shipping services to potential customers in the competitive Maritime Industry in UK, London and Overseas Freighters marketing executives invoke a penetration pricing strategy designed to gain a larger marker share greater than the rest of their competitors.

Introduction

Pricing a product or service is among the four key elements of marketing. It is an important strategic issue because it relates to the entire process of positioning a product in a target market segment. The other three marketing elements namely product features, channel decisions, and promotion utilized in positioning a product depend on the pricing strategy. To create and develop a sound pricing strategy in line with the demands of the target market segment, it requires proper market analysis before segmentation and positioning takes course. Since the introduction of this aspect of marketing into the corporate business sector, 12 pricing strategies offer marketing executives an efficient way of marketing products and services as they appeal to potential consumers (Longenecker & Petty, 2005:338). These strategies are namely premium, penetration, economy, price skimming, psychological, product line, optional product, captive product, product bundle, promotional, geographical, and value pricing respectively. The aim of this essay is to explain the pricing strategy that London and Overseas Freighters uses to market their products to potential customers and their overall effectiveness.

Penetration Pricing Strategy

As a perquisite to their pricing strategy, distribution and promotion tactics development insured the success of the promotion bid as a security factor to the entire marketing process. While there is no single recipe to determine pricing of services offered, the management board of the organization commissioned a team of 11 competent market analysts to perform an in-depth market analysis (MvGrath, 2001:196). Their major role revolved around segmenting the target market to initialize the process for positioning their products in the market.

This process entailed defining various shipping service packages that the company wanted to introduce into the UK maritime industry. As a way of estimating their demand for shipping services in UK and its neighboring countries, the marketing executives estimated a demand curve that indicated a high surge in demand for automated shipping services that other competitors did not have (Smith, 2011:71). From the analysis, price seemed to dictate the quantity of demand for their electronic-simulated shipping services that were more efficient than manual handling of cargo.

Understanding Environmental Factors

As a way regulating overhead operation costs for the entire organization, market analysts enlisted by the company derived fixed and variable costs associated with each product line they hoped to introduce into the selected market segment. In the UK, the maritime industry is highly monitored by the government as a means of eliminating unhealthy competition among players in this economic sector (Shen, 2008:41). Furthermore, evaluation of likely competitor actions served as a way of understanding the demand and supply of shipping services in UK to all the major destinations in the world.

Setting Pricing Objectives

The main objective set for the pricing strategy was to maximize revenue collected by the company from its shipping operations. To achieve this, London and Overseas Freighters management team decided to lower their shipping prices to levels 10-15% lower than their rivals (Shen, 2008:45). This marketing strategy aimed at attracting potential customers with bulk shipping needs as well as to poach customers from their rivals with low prices for large cargo shipments. Price reduction as a marketing tool served to attract a large clientele base for the organization before restoring the prices to normal to maximize on profit generated. Using the information collected by market analysts, the organization marketing committee selected the penetration pricing method by developing a coherent pricing structure that was inclusive of attractive discount rates offered to meet different client needs.

Applying Pricing Methods

Pricing methods assist managers of organizations to set specific price levels designed to achieve certain pricing objectives. In this, London and Overseas Freighters lowered their shipping prices for large cargo shipments to capitalize on ensuing large economies of scale. This period lasted for three consecutive months before the company restored their prices back to normal. This gave them a large clientele captured by their pricing strategy three months prior to price restoration. It is a complex way of marketing hence the company had to plough back their 2005/2006 fiscal year profits prior to initializing the marketing (Atienz, 2002:80). In addition, plans to purchase new and more efficient automated loading machines siphoned much of the company’s capital set aside for asset development that could have acted as another financial back-up resource.

Efficiency of the Penetration Pricing Strategy

By aiming at building a large clientele before profit maximization, London and Overseas Freighters managed to market their products to many local and international customers within a very short period. Immediately after running their first commercial outlining their low-priced shipping services, customers started walking into their premises inquiring of the advertised offers (Burton & Holden, 2008:53). Within twelve weeks after launching the pricing strategy, the company registered a 30% percent increase in revenue collection before tax. This remarkable achievement signaled the beginning of the next phase of the pricing strategy that involved restoring prices back to normal to capitalize on the captured clientele.

Though harshly criticized by their rivals for implementing price cuts and discounts below normal market standards, the company capitalized on the opportunities they curved for themselves in the target market segment (Bojanic & Reid, 2009:96). Shipments headed to Middle East and China received a 10 percent price reduction as a way of forging permanent business relations with these fast growing economies. In conclusion, by reinvesting back profits to finance the pricing strategy, the company did not strain its reserves as projected in the initial master plan. This pricing strategy formed the foundation for all other marketing strategies that the company has implemented since 2007.  Several other companies have also created and developed similar pricing strategies in a bid to catch up with London and Overseas Freighters.

As outlined by Berry and Yadav, flat rate pricing boosts a company’s competitiveness of a service by minimizing the imminent threat of escalating costs. Satisfaction-based pricing application to marketing shipping services offered by London and Overseas Freighters could have increased the company’s profit margins as the penetration pricing strategy. In addition, introducing product guarantee could have increased customers loyalty to the company as well as attract potential customers. The main reason why customers become loyal to a business is the measure of satisfaction they receive from the service or product they purchase from the company. Therefore, London and Overseas Freighters could have ensured this by providing shipping services that meet the needs of each individual customer. By modeling their service products according to the shipping needs of each customer is hard but the rewards are great. A company capable of implementing a satisfaction-focused pricing strategy needs to understand individual needs of each customer before suggesting a price for the services they promise to offer to ensure they include all the costs they are to incur whilst offering the service.

Penetration Pricing Strategy
Penetration Pricing Strategy

A company offering satisfaction-prices prioritizes customer’s needs over the organization objectives of the company. Therefore, satisfaction pricing is not suitable for marketing service-based products in a competitive market such as UK.  According to Berry and Yadav, Relationship pricing could have helped the company to base its pricing parameters on issues that define their individual relationship to their each customer (Berry & Yadav, 1996:160). Some of these factors include how long the customer has been loyal to the company, the total volume of business transacted, and the type of transaction they use regularly. This helps a company to identify profitable and not-so profitable customers. By having such a deep understanding of the needs of each customer, the company can comfortably develop products aimed at different classes of customers in the same market segment (McDaniel & Gitman, 2008:309). Moreover, it is easier to monitor their transactions to assist them derive appropriate discounts for each product line offering.

Relationship-based pricing would assist the company to streamline its product-centric pricing practices across the enterprise as well as to switch to a customer-centric pricing policy (Bateson & Hoffman, 2010:160). RBP solutions assist product managers at London and Overseas Freighters to define price lists for various product lines at a global level as well as define expectations at regional, customer, and account levels. This assists them to personalize the product to fit the needs of the client. Thus, it would be the most appropriate pricing for marketing shipping services offered by London and Overseas freighters in the UK maritime industry.

As a cushion to unexpected over-head costs, Relationship-based pricing would assist the company to take care of the pricing and billing functions of any product. In addition, Relationship-based pricing assists companies to retain loyal clients, sell more to the existing customers, as well as have a 360-degree view of the customer-base to prevent revenue leakage (Ryals, 2009:303). Relationship-based pricing is an economically sound strategy that does not require the replacement of the existing core system to function properly. Furthermore, it is low-risk inclined in that it would enable a company to achieve its business vision successfully.

To achieve true customer-centricity, company could utilize Relationship-based pricing to assist them to leverage and reinforce their individual relationships with each customer the transact business with (Phillips, 2005:24). To improve on the profitability of the each product line, Relationship-based pricing assists a company to facilitate innovative approaches to manage existing customer relationships. It is the easiest way of empowering companies to reward clients for their loyalty by introducing specific pricing and reward scheme aimed at fulfilling the organizational goals and objectives. In addition, Relationship-based pricing helps to minimize the overall maintenance and set-up time for individual customer accounts as well as improve customer communication aimed at reducing misuse of the collected revenue (Berry & Yadav, 1996:159). Therefore, relationship pricing is more suitable for marketing shipping services offered by London and Overseas Freighters.

Efficiency pricing serves to appeal to economically minded customers who are looking for the best priced products or services. Therefore, if implemented by London and Overseas freighters, it would help them to market their shipping services o economically minded customers who are looking for the lowest price possible to ship their products to China and the Middle East. To achieve this, the company would need to redesign their current shipping products to offer discounts for loyal customer every time they ship with them. This would increase customer’s loyalty and increase their annual revenue collection. However, it would cost the company a lot to implement this pricing strategy as getting customers who ship regularly in a competitive market like UK is hard. Therefore, Efficiency pricing is not an appropriate pricing strategy to market shipping service products currently being offered by London and Overseas Freighters.

Reaching Target Markets

Well-articulated marketing strategies assist marketing executives to build adequate awareness of a business, its products, and the service they offer. Communication methods such as company websites, press releases, brochures, and trade show presentations assist an organization to communicate its business offerings to potential customers. To reach its target market easily, London and Overseas Freighters designed an attractive website where customers can view all the product prices that they are currently offering (Goldszmidt, 2003:73). This way, potential customers get a chance to learn of the various shipping services that London and Overseas Freighters offers. Before deciding on which marketing communications strategies to adopt, marketing executives at London and Overseas Freighters carried out a substantial research in the target market. The aim was to identify individual customer’s needs in order to develop appropriate marketing strategies that could ensure every customer is well versed with the shipping services offered by London and Overseas Freighters.

An in-depth analysis of the target market segment assisted marketing executives at London and Overseas Freighters to understand the processes involved in buying and selling shipping services products in order to develop pricing strategies that could march these needs sought by the clients. By the time London and Overseas Freighters introduced low-price cuts to shipments destined to the Middle East and china, no other company in the UK had implemented such a pricing strategy (Vargo & Lusch, 2006:376). Therefore, the company developed and implemented a promotional mix aimed at stimulating potential clients to buy the shipment service packages that the London and Overseas Freighters had introduced into the UK maritime industry.

Positioning In Relation To Competitors

Operating a shipping company in UK is tough a business especially considering the large number of competitors and the current economic downturn. To meet this challenge, the company’s market analysts selected the right combination of promotion tools aimed at squashing the competition and giving the company a competitive edge over their rivals (Vargo & Lusch, 2006:378). The promotion mix depended solely on the shipment needs expressed by potential customers as well as the current pricing standards prevailing in the market segment.

Advertising

Through promotional advertisements, the company was able to market its products and services to potential customers describing to them how their shipping services could benefit their businesses. Their aim of advertising new product lines was to promote the company as a whole entity rather than single products and services. This served as an efficient way of popularizing the company to all potential clients in UK and its neighboring countries. Moreover, advertising helped London and Overseas Freighters to keep their existing customers updated on new developments in the industry (Bekkum, 2001:129).

To increase on their profit margin after implementing the penetration pricing strategy, London and Overseas Freighters invoked an advisement drive aimed at reducing per unit cost of each product line as well as increasing the sale of their services to their existing customers. This enabled them to communicate their product changes to their customers directly rather than depending on intermediaries to educate potential customers of their new service offerings. Therefore, through advertising they were able to increase their market share formerly commanded by major competitors in the maritime industry in UK.

Forming Customer Expectations of the Services Offered

Introducing new products into a highly competitive maritime industry in the UK necessitated London and Overseas Freighters to develop appropriate ways of forming customer expectations for the Services Offered by the company. This entailed sales promotions, public relations, and personal selling which helped the company to communicate to potential customers of the low-priced shipping services that the company had introduced to all shipments destined to Middle East and china (Jones, 2008:144). Given that the company based its pricing strategies on market analysis derived by professional marketing executives, the new prices were designed to cover almost every hipping need raised by potential customers during the process of analyzing the target market segment.

To reach more customers through direct marketing, the company employed 2,000 sales agents who were responsible of marketing their new price-cuts to potential customers in the streets of London and all major towns in the UK. Moreover, they hired billboards strategically located on all major highways in the UK to post their advertisement targeted at motorists plying these routes (Jones, 2008:143). These advisements outlined the benefits that customers would gain by shipping their products with London and Overseas Freighters. These included assured security for their shipments, full compensation in case shipments were lot before reaching their destination as well as automated methods of handling cargo to prevent breakage and damages commonly associated with manually handling of cargo from a ship. Finally but yet importantly, the company streamlined its electronic cash transfer systems to accommodate clients transacting business with internally recognized credit cards such as American Express, MasterCard, and Maestro inclusive of visa cards too. This enabled customers to transact their businesses in real-time as well as reduce the need of carrying cash to pay for shipping services.

The Impact of Marketing Communication Strategies on the Employee’s Behavior

The marketing communication strategies implemented by London and Overseas Freighters motivated employees to work harder to achieve the set marketing goals and objectives. As a way of motivating them, the company introduced commissions to be earned every time a sales agent convinces a customer to use their shipping serves. This was beside their basic pay that was inclusive of entertainment, housing, and travel allowances. Costs incurred by sales executives travelling abroad to meet with potential customers in Middle East and china were covered under the company’s marketing campaign budget (Gradus & Dijkgraaf, 2008:125). To meet high employee job satisfaction and retention rates, the company introduced a training program that equipped each employee with the relevant knowledge and skills concerning its operations in each department. This gave employees a chance to develop their career in the field they felt suited them most as a way of motivating them to achieve the set organizational goals and objectives.

Equipping employees with the relevant information regarding the core operations of the company gave employees a feeling of belonging to the organization. Finally yet importantly, employees received awards for their achievements as a way of appreciating their commitment to ensuring the realization of the company’s organizational goals and objectives. In some cases, promotions and pay rises were given to employees who showed exemplary marketing skills as well as adequate knowledge in new product management.

Conclusion

In summary, the pricing strategy had to take into account all the legal constraints expected to pose a challenge to the marketing plan endorsed by the organization’s management committee. Lastly, the main objective set for the pricing strategy was to maximize revenue collected by the company from its shipping operations.

Referencing List

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