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Published: Fri, 02 Feb 2018
The objective is to become the lowest-cost producer in the industry
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Strategies for Competitive Advantage :-
Differentiation Strategy :-
This strategy involves selecting one or more criteria used by buyers in a market – and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product – often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.
Low Cost Leadership Strategy :-
With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimising costs. If the achieved selling price can at least equal (or near)the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering “standard” products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.
Quick response Strategy :-
Just in time inventory partnership strategy between suppliers and retailers of general merchandise. It is aimed mainly at reducing order response time, and achieving greater accuracy in shipping the correct goods in correct quantities, by employing computerized equipment such as barcodes and EDI to speed up flow of information. Its other objectives include reduction in operating expenses, out-of-stock situations, and forced mark-downs (discounts).
Give at least two examples of products which have been developed gain competitive advantage and briefly discuss your findings.
Suzuki Mehran is the Product of Suzuki Pakistan . It’s the small 800 cc car and lowest price ever any car have in the current market. The Suzuki Pakistan has adopted the low cost leadership strategy in the mehran cars. Its have version VX And VXR. These economic cars with good working condition and reliable. The supply of cars is frequent and it’s the maximum produced car in Pakistan. The parts are available through out Pakistan with low price.The Suzuki have official show rooms as well as private dealer too. The promotion and advertisement of the car was done through electronic media and press. Now its earning more than 31% for Suzuki Pakistan. Its competitive advantage is Low cost and Low Selling Price. Its About Price: Rs. 514,000/-
Suzuki Cultus is the product of Suzuki Motors Japan. And Now its produced in Pakistan too. It’s the 1000 cc semi luxury small car with power full engine, well set interior and EFI start up system. AC fitted and CNG kit. The car have 4 seats and very smooth drive. That’s the ever first small luxury car in Pakistan. The competitors like Toyota and Honda don’t have such a product. The have smooth supply through dealer and show rooms. And parts are available through Pakistan.The Competitive advantage is through Low cost leadership strategy and Quick Response Strategy. Its selling Price is about Price: Rs. 897,000/- . Now other car is available in Pakistan with the qualities of Suzuki Cultus comparatively in the price. So that’s the competitive advantage.
Discuss the different types of distribution channels used by businesses (one page maximum)
The distribution channel
Chain of intermediaries,each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user…. This process is known as the ‘distribution chain’ or the ‘channel.’ Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
A number of alternate ‘channels’ of distribution may be available:
Distributor, who sells to retailers,
Retailer (also called dealer or reseller), who sells to end customers
Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.
If we mention in a single sentence the distribution channel is nothing but it is a process of transfer the products or servises from Producer to Customer or end user.
There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services – the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas.
Type of distribution channel
The indirect channel is used by companies who do not sell their goods directly to consumers. Suppliers and manufacturers typically use indirect channels because they exist early in the supply chain. Depending on the industry and product, direct distribution channels have become more prevalent because of the Internet.
A direct distribution channel is where a company sells its products direct to consumers. While direct channels were not popular many years ago, the Internet has greatly increased the use of direct channels. Additionally, companies needing to cut costs may use direct channels to avoid middlemen markups on their products.
Intensive distribution – Where the majority of resellers stock the ‘product’ (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.
Selective distribution – This is the normal pattern (in both consumer and industrial markets) where ‘suitable’ resellers stock the product.
Exclusive distribution – Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the ‘product’.
Richard E. Wilson, ‘A Blueprint for Designing Marketing Channels’, (www.chicagostrategy.com, 2008)
Discuss the example of your products and justify how does the product under discussion satisfies customer convenience.
The Two Products Of Suzuki Pakistan which are discussed above have same distribution policy as Suzuki Pakistan have for All Products. The Suzuki Sales their Cars through Company Own Show rooms but their largest sales depend on Authorized dealers. The Customer visit the dealer show room and choice the car and fill up the order form . with some initial Payment in advance the dealer book the car for customer which almost produced in the month and presented to customer on full payment on the same dealer show room. The dealers also book the cars for their self own sales policy where the urgent needed customer is targeted by giving them the car in single day by charging little extra. The Parts of these cars also available on these authorized dealers show rooms and they also provide repair and maintenance facilities in these show rooms workshops. In Peshawar Tayyab Suzuki Motors and Sarwar Suzuki Motors are the authorized dealers of Suzuki Pakistan. Other then these sales point Suzuki also sales Cars to Industry like Cars for Yellow Cap Scheme taxies and Other Departments and Organization which is done through Central Sales Department of SUZUKI Pakistan.
Discuss how pricing strategy is adopted generally by the business to achieve organizational objectives.
The idea and practice of establishing an optimum price for a product or service that will result in the highest profit.
There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use.
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of competitive product:
Products have lasting distinctiveness from competitor’s product. Here we can assume
The product has low price elasticity.
The product has low cross elasticity.
The demand of the product will rise.
Products have perishable distinctiveness from competitor’s product, assuming the product features are medium distinctiveness.
Products have little distinctiveness from competitor’s product. assuming that:
The product has high price elasticity.
The product has some cross elasticity.
No expectation that demand of the product will rise.
Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
This appears in 2 forms, Full cost pricing which takes into consideration both variable and fixed costs and adds a % markup. The other is Direct cost pricing which is variable costs plus a % markup, the latter is only used in periods of high competition as this method usually leads to a loss in the long run.
Creaming or skimming
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the product – commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target “early adopters” of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. This strategy is employed only for a limited duration to recover most of investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors.
A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition. The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm’s best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.
Loss Leader: Basic Concept In the majority of cases, this pricing strategy is illegal under EU and US Competition rules. No market leader would wish to sell below cost unless this is part of its overall strategy. The idea of selling at a loss may appear to be in the public interest and therefore not often challenged. Only when the leader pushes up prices, it then becomes suspicious.
Setting a price based upon analysis and research compiled from the targeted market. Also with the cost price.
The price is deliberately set at low level to gain customer’s interest and establishing a foot-hold in the market.
Setting a different price for the same product in different segments to the market. For example, this can be for different ages or for different opening times, such as cinema tickets.
Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
Aggressive pricing intended to drive out competitors from a market. It is illegal in some places.
Contribution margin-based pricing
Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product’s price and variable costs (the product’s contribution margin per unit), and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price. The product’s contribution to total firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold).
Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.
A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers – ranging from where they live to what they buy to how much they have spent on past purchases – dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.
An observation made of oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following.
Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers.
Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.
Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing
In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.
Discuss the pricing strategy adopted for the product you are considering for the assignment.
Suzuki Pakistan Pricing Strategy :-
Suzuki Pakistan started with Market Penetration Pricing strategy and when they captured the market and Now they are working on Market Oriented Pricing where they Price according to the market of Pakistan. It’s the example of the strategy when Government of Pakistan give licenses to People to bring used cars to Pakistan So Suzuki reduce the prices of cars to keep their in the market Run.
Discuss the need of integrating promotional activities to achieve marketing objectives.
Promotional Activities :-
The act of promoting or the fact of being promoted; advancement.
Encouragement of the progress, growth, or acceptance of something; furtherance.
Marketing objectives :-
Goals to be accomplished by an organization’s overall marketing program such as sales, market share, or profitability. A good objective will be measurable, attainable, and socially significant.
The Promotional activities should be made according to the Market objectives. Which will be natural integration of promotional activities and marketing objectives. The Suzuki gained market share , sales and Profitability through good promotional activities.
Give an example from the local market where promotional activity has been integrated with the other marketing mix elements and illustrate how the integration has been achieved.
The Suzuki Tayyab Motors and Suzuki Sarwar Motors lunched the promotional activity according to Suzuki Motors Pakistan as the done in the whole Country . the plan was to give Old car and get New one. The rules was to give old Mehran , Alto and Cultus car and get a new model of same given car. With some additional amount payment according to condition of old car. This activity develop trust on the company and the new product was also introduced to customer. The activity was profitable because the re-condition of cars were low cost and presented as new car after re-habitation. That was best integration of promotional activities with marketing objectives.
Discuss the extended marketing mix, and how have they emerged and made its place in the marketing mix concept.
4 P’s Of Marketing Mix :-
Marketers are actively engaged in developing products that their customers truly need. They pay careful attention to the features and benefits of the product as it is being developed and ensure that it is adequately differentiated from alternative offerings so that they can present a “value proposition” or at the very least a good reason to purchase the product in the first place. Suppliers must apply the same principles when marketing ingredients, as manufacturer/marketers must do for their end-user brands.
Marketers can further differentiate products through application of a variety of pricing strategies, and it is true that many natural personal care players are not able to achieve the volume levels necessary to be the low cost leader. Yet, there are dozens of other ways to position a product strategically via pricing, and companies must pay careful attention to the target market and the competitive environment, as well as a variety of external factors including the regulatory, economic, technological, and social inputs when choosing the strategy that best fits their product.
Distribution channels are also an important way to achieve sustainable competitive advantage. Some products are available only in specific channels while other products are available in multiple channels. Where the marketer chooses to offer the product often dictates what happens with the other elements of the marketing mix and can provide further differentiation.
Promotion represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements: advertising, public relations, word of mouth and point of sale. A certain amount of crossover occurs when promotion uses the four principal elements together, which is common in film promotion. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet adverts through print media and billboards. Public relations are where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word of mouth is any apparently informal communication about the product by ordinary individuals, satisfied customers or people specifically engaged to create word of mouth momentum. Sales staff often plays an important role in word of mouth and Public Relations.
Koichi Shimizu (2009) “Advertising Theory and Strategies”, 16th edition, Souseisha Book Company (Japanese)
4 C’s Of marketing Mix:-
Commodity: the product for the consumers or citizens. Not product out.
Cost: producing cost, selling cost, purchasing cost and social cost.
Channel: Flow of commodity : marketing channels.
Communication: marketing communication : It doesn’t promote the sales.
Marketing Mix Of Suzuki Pakistan For Cultus and Mehran Cars :-
Product & Price:-
Price: Rs. 897,000/-
Cultus is the blend of space and craft.
Its trim body Conceals ample space &
flexblity for both passenger and storage.
Cultus ensures everyone, exceptional
Value and quality.
Colors: Pearl Red, Graphite Grey, Solid white,
Indigo, Silky Silver, Aqua Blue, Eminent Blue
Price: Rs. 514,000/-
Unrivalled in its class, Mehran is Pakistan’s largest
selling car. More smart features like head turning
lamp, matching front grill and a two spoke steering
wheel gives it the tidy look. Functional economy,
peak performance or unmatched fuel efficiency,
Mehran VXR is the leader.
Colors: Pearl Red, Graphite Grey, Solid white, Silky Silver, Eminent Blue
For Promotion of Pakistan Suzuki automobiles, we will use different media T.V, Radio, Test Drive, Sponsorship, News paper etc. We will aware our target audience through above sources.
The distribution channels of Pak Suzuki shown in the following
Select one product each (from local market) which fits into consumer markets and organizational markets. Recommend the marketing mix for both products.
THE CONSUMER MARKET
The consumer market is composed of individuals who buy a specific good or service.
Rarely does one product interest the entire population. This statement applies even to staples, such as sugar, flour, and salt. A small percentage of households do not eat these products, so even if a company did target the entire population, not everyone would be a potential consumer.
Organizational Market :-
All the individuals and companies who purchase goods and services for some use other than personal consumption. Organizational markets usually have fewer buyers but purchase in far greater amounts than consumer markets, and are more geographically concentrated. Organizational markets are divided into four components: industrial market, which includes individuals and companies that buy goods and services in order to produce other goods and services; reseller market, which consists of individuals or companies that purchase goods and services produced by others for resale to consumers; government market, which consists of government agencies at all levels that purchase goods and services for carrying out the functions of government; institutional market, which consists of individuals and companies such as schools or hospitals that purchase goods and services for the benefit or use of persons cared for by the institution.
Nestle Every Day (Consumer and Organizational Market):-
Nestle Every Day Milk is the product which is used in the consumer market as well as in the organizational market. People use it for tea and pure milk drinks in the houses while some drinks spot and hotel and restaurants use it for making Milk shakes , Tea and other milk based product for further selling. More than 800 products are based on milk which provide a plate form for milk industry and Nestle Every day is meeting their plate form by giving local and international milk and milk products.
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