2013

Assignment # 05
Principles of Marketing
Submitted to: Miss ANAM TANVEER Submitted by: BILAL AHMAD | 12002001006 | BS.AM

BILAL AHMAD University of Management & Technology, LAHORE 5/28/2013

Contents
Part A............................................................................................................................................................. 2 Compare the pricing strategies of any two companies in same industry (i.e. Nokia & Samsung, Gourmet & Calories). .................................................................................................................................................... 2 Part B............................................................................................................................................................. 2 What types of product mix and price adjustment strategies do you observe? ........................................... 2 Pricing Strategy of Nokia:.............................................................................................................................. 2 Penetration Pricing ................................................................................................................................... 2 Advantages, Nokia claimed for penetration pricing include: ............................................................... 2 Penetration pricing strategies do have some drawbacks: .................................................................... 2 Price Skimming strategy by Nokia:............................................................................................................ 3 Competitor based Pricing........................................................................................................................ 3 Value Pricing: ............................................................................................................................................ 3 Product mix and price adjustment strategies of Nokia: ............................................................................... 4 1. 2. 3. In Mobile phone category: ................................................................................................................ 4 In Smart phone Category: ................................................................................................................. 5 In smart phone lite category: ............................................................................................................ 5

BRAND PERCEPTION OF SAMSUNG: ............................................................................................................. 6 SKIMMING PRICING OF SAMSUNG SMARTPHONES: ................................................................................ 6 ONLINE DISCOUNTS: THE GREAT CUSTOMER MAGNET to cope up with low price: ................................ 6 Penetration Pricing Strategy by Samsung: ................................................................................................ 6 Predatory Pricing used by Samsung:......................................................................................................... 8 Product mix and price adjustment strategies of SAMSUNG:........................................................................ 8 Price adjustment strategy of Samsung-Product line Pricing: ................................................................... 9 References: ................................................................................................................................................... 9

Part A Compare the pricing strategies of any two companies in same industry (i.e. Nokia & Samsung, Gourmet & Calories). Part B What types of product mix and price adjustment strategies do you observe?

Pricing Strategy of Nokia:

Penetration Pricing
Penetration pricing is used to gain instant market share in a new market. Well know companies like Nokia do it with new products that carry new technologies to take more market share from competitors. Nokia uses penetration pricing when it launches its products. This is down to the fact that they first sell their products for high prices and have very limited sales but make big profits on each sale.

Advantages, Nokia claimed for penetration pricing include:

1. Catching the competition off-guard / by surprise 2. Encouraging word-of-mouth recommendation for the product because of the attractive pricing (making promotion more effective) 3. It forces the business to focus on minimising unit costs right from the start (productivity and efficiency are important) 4. The low price can act as a barrier to entry to other potential competitors considering a similar strategy 5. Sales volumes should be high, so distribution may be easier to obtain

Penetration pricing strategies do have some drawbacksi:

1. The low initial price can create an expectation of permanently low prices amongst customers who switch. It is always harder to increase prices than to lower them 2. Penetration pricing may simply attract customers who are looking for a bargain, rather than customers who will become loyal to the business and its brand (repeat business) 3. The strategy is likely to result in retaliation from established competitors, who will try to maintain their market share

Price Skimming strategy by Nokia:

Nokia also used price skimming strategy for some of its products, as shown in the Fig. below:

ii

Competitor based Pricing

Used when there is a lot of competition in the market.2. When a company is looking to take another companys market share by offering similar products at a lower price. Once the products have gained a foothold and popularity in the market Nokia starts using competitive based pricing. This way they lower their profits on each product and increase the number of people who buy the products thereby still making a considerable profit.iii

Value Pricing:
This is pricing strategy in which a company wins loyal customers by charging a fairly low price for a high quality offering. Example: Nokia E 63 Mobile. This mobile is priced at Rs. 11,260/-. This mobile offers a large number of high end applications like: Web-Browsing, Email, Data Network, GPRS, GPS & Navigation and lots of other facilities apart from serving the basic mobile functions. At the same time it has a sleek body & robust structure.

Product mix and price adjustment strategies of Nokia:

Price is a key factor in the selling of a product, and is usually the one that is open to the most change based on different pricing strategies, for example, competitor based, penetration or skimming. The three main factors affecting the amount charged for a product or service, are; the cost of production, customer demand and competition. Since its entry into Indian mobile market in 1995, it focused on manufacturing of mobile handsets based on GSM technology. Nokia built a strong brand image with focused marketing and distribution network. It started focusing on the low-cost mobile phone segment for rural markets in India, but, faced stiff competition from Sony Ericsson, Samsung, and Motorola who also started offering low-cost handsets. Nokia has come up with the perfect prices for each and every consumer segment in the market. A lower middle-class person can go for a Nokia 1200 costing around Rs. 1200 while an executive can opt for N-96costing around Rs. 33,000

1. In Mobile phone category:

2. In Smart phone Category:

3. In smart phone lite category:iv

SAMSUNG

BRAND PERCEPTION OF SAMSUNG:

It seems clear that by pricing the actual product at an MRP higher than iPhone 4S , Samsung is finally vying for bargaining rights as the top smartphone maker in the world. The device clearly has some significant advantages over the latest iPhone in terms of hardware functionality as well as in additional features such as Smart Stay and S-tag which have not existed so far in smartphone world. Being the top spec phone is definitely reflected in the pricing of the device. The only thing that seems missing is perhaps the small half eaten apple gracing the back of the phone. It is this aspect that Samsung wants to drive home to the consumers. This phone is better than iPhone 4S and we will show you how by pricing it higher.

SKIMMING PRICING OF SAMSUNG SMARTPHONES:

The rapid descent of Samsungs price from 43,180 to Rs 38,900 is not so surprising in the world of smartphones and e-commerce. For example, the Galaxy Tab launched in India at a price of Rs 38,000 and then the price was reduced to coincide with the launch of the iPad to Rs 28,000. The tablet today retails online at a price of Rs 23,999, all in a span of few months. The practice of skimming pricing isnt new in the world of consumer electronics. While the ethical nature of the practice is debatable, the fact is that the practice is absolutely common place. Samsung has definitely gained significant amount of revenue from its pre-order and pre-booking customers who will pay the full MRP for the device.

ONLINE DISCOUNTS: THE GREAT CUSTOMER MAGNET to cope up with low price:
E-commerce stores will continue to play the cat and mouse game for a while longer. The attempts to woo in high value customers by offering Samsung Galaxy S3 at dirt cheap rates will continue and attract higher amount of new customers who would share the deal among friends. The typical customer who buys Samsung Galaxy S3 even at discount is someone who should contribute significantly to the sales of these online stores. This is why the temptation is higher to attempt and woo more such customers from competitors to ones own site.v

Penetration Pricing Strategy by Samsung:

Penetration pricing is the strategy of entering the market with a low initial price so that a greater share of the market can be captured. The penetration strategy is used when an elite market does not exist and demand seems to be elastic over the entire demand curve, even during early stages of product introduction. High price elasticity of demand is probably the most important reason for adopting a penetration strategy. The penetration strategy is also used to discourage competitors from entering the market. When competitors seem to be encroaching on a market, an attempt is made to lure them away by means of penetration pricing, which yields lower margins. A competitors costs play a decisive role in

this pricing strategy because a cost advantage over the existing manufacturer might persuade another firm to enter the market, regardless of how low the margin of the former may be. One may also turn to a penetration strategy with a view to achieving economies of scale. Savings in production costs alone may not be an important factor in setting low prices because, in the absence of price elasticity, it is difficult to generate sufficient sales. Finally, before adopting penetration pricing, one must make sure that the product fits the lifestyles of the mass market. For example, although it might not be difficult for people to accept imitation milk, cereals made from petroleum products would probably have difficulty in becoming popular. How low the penetration price should be differs from case to case. Samsung is getting more market share by using penetrating pricing strategy through its features phone category as shown in the Fig.

Predatory Pricing used by Samsung:

This pricing strategy is followed with the intention to wipe out the competition. Example: In the year 2003, LG and Samsung along with Reliance came up withers. 500/- mobile scheme where both handsets along with connections were available for Rs. 500/-. This was something which revolutionized the mobile phone and telecom industry.vi

Product mix and price adjustment strategies of SAMSUNG:

Samsung has the following profile of product mix: Mobile phones TV/ Audio/ video Camera & camcorder Computers Printers and multimedia Home appliances

Price adjustment strategy of Samsung-Product line Pricing:

Apple uses the product line pricing which means setting the price steps between various products in the product line based on cost difference between the products, customer evaluations of different features and competitors (Nokia, iphone,) price.

References:
i

http://www.tutor2u.net/blog/index.php/business-studies/comments/qa-when-is-it-appropriate-for-a-firm-touse-penetration-pricing ii http://www.authorstream.com/Presentation/priyankraj_06-349575-nokia-pricing-policy-presentat-educationppt-powerpoint/ iii http://www.scribd.com/doc/28920200/Nokia-Company-Analysis iv http://www.nokia.com/pk-en/products/products/?action=catalogsearch#nk-main_menu_component v http://techpp.com/2012/06/07/the-curious-case-of-samsung-galaxy-s3-pricing/ vi http://www.scribd.com/doc/27965616/Pricing-Strategies-Mobile-Phone-Industry