Pricing Strategy Analysis 1

Pricing Strategy Analysis 2 Contents A. Kelloggs Cocoa Krispies Pricing Strategy Analysis.3-6 a. External environment.3 i. Market size and Trends..3 ii. Customer Analysis..4 iii. Competitor Analysis...4 b. Internal environment..5 i. Objectives......5 ii. Product/Market Strategies..5 iii. Internal Strengths and weaknesses.5 iv. Product life cycle5 v. Distribution channels analysis5 c. Recommendations..6 B. NIVEA Visage youngs pricing strategy7-9 a. External environment.7 i. Market size and Trends..7. ii. Customer Analysis.7 iii. Competitor Analysis..7 b. Internal environment..8 i. Objectives..8. ii. Product/Market Strategies..8 iii. Internal Strengths and weaknesses.....8 iv. Product life cycle....8 v. Distribution channels analysis8 c. Recommendations..9 B. Apple Ipods pricing strategy9-12 a. External environment.9-10 i. Market size and Trends10 ii. Customer Analysis10 iii. Competitor Analysis.10 b. Internal environment.11 iv. Objectives..11 v. Product/Market Strategies.11 vi. Internal Strengths and weaknesses....11 vii. Product life cycle...11 viii. Distribution channels analysis...11 c. Recommendations..12

Pricing Strategy Analysis 3 Kelloggs Cocoa Krispies Pricing Strategy Analysis: Kellogg is an organization that believes in providing superior quality nutritious food products and has been the market leader in the industry for decades now. Kelloggs ability invest in new product research for more health conscious society of today has been the key factor which has sustained the competitive brand image of Kellogg in the consumers minds. Despite being the leader in the market with a mind blowing 69% share in American market, the company faces tough challenges with respect to the competitive pricing. The following text will take in to account the external and internal factors which affect the pricing strategy at Kellogg. External market analysis: The market size of Kellogg is $9.7billion in the ready to eat cereals market which is a major chunk from the entire market share. It enjoys multiple brands in the market amongst which the best selling kids cereal brands include GM Lucky Charms, GM Count Chocula, Post Marshmallow Alphabits, Q Marshmallow Safari and Rice Krispy. Despite these multiple brands, the organization faces competition from private label substitutes and the basic driving factor behind the sales of these substitutes is the lower price of the product. The Cocoa Krispies market shows promising trends particularly as the society is being more health conscious hence the demand for healthy nutritious products is bound to rise. But the newer product launches are not doing as well as the line extensions of existing brands are doing in the market. Mainly because a line extension is not a brand but is a variation in the existing brand which is safer to try form consumers point of view. Despite the markets tendency to get attracted to line extensions, Kellogg has not introduced new cereal lines for a couple of years now. Consequently, the US market share has been slowly declining.

Pricing Strategy Analysis 4 . Customer analysis: Kellogg produces a variety of goods targeting to adults as well as kids. However, its the kids market sales that have a bigger influence on the growth rates and sales figure. Kids cereals are the tenth fastest growing products in the supermarket. The purchases are made by parents where as the influencers of the purchase decisions are the kids. Therefore, Kellogg not only advertises to attract kids attention but also to create awareness among the parents who want healthy food for their children. The buying behavior exhibited by Kelloggs market is a mix of habitual and variety seeking buying behavior, which takes low involvement in the purchase decisions and few significant, perceived brand differences (Kotler, 2001). Customers are habitual to have cereals breakfast but they can switch from one to brand to another if the prices are not competitive i.e. they are price sensitive. However, Kellogg being a leader in the market enjoys strong brand loyalty but not by the entire target market. One of the weaknesses of Kelloggs has been the stubborn attitude towards price change and has most of the times been a follower in the pricing strategy. Competition: Kellogg competes with three large dominant companies in the market namely General Mills, Post and Quaker which primarily are successful in making Kellogg lose its market share by using price competition strategies and newer and fast line extensions. The competition becomes very intense due to current players and the presence of substitutes, which are able to grab 10% of the market share. The reason behind such strong competition from substitutes is the low switching costs of the customers since they can easily move from one label to another by getting attracted to lower prices of the products. Obviously these private labels dont charge premium prices like

Pricing Strategy Analysis 5 that of branded products. However, the company faces negligible threat of new entrants in the market because in the first place the industry requires high investment for research and development which is a huge fixed cost for new entrants; this also makes it difficult for the new players to have successful product development. Not only production but the marketing and distribution activities also need heavy investment in order to break the clutter of other cereals in the market and persuade cereal consumers to purchase their product Internal environment: The internal environment analysis takes into account the objectives, business strategies designed to meet those objectives, product life cycle and identifying the strengths and weaknesses of the company. The objective of Kellogg is to continue being the market leader in providing ultra superior quality healthy nutrition and sustaining its long term growth in volume of sales and percentage profits. The strategies which the company devises to achieve the objective mainly include reduction in cost structure and build upon its brand image so that the umbrella of Kelloggs helps provide a safe platform for newer products to land at. The product market strategies that they adopt include diversifying into different product lines, innovating to for product development and adopt strategies to develop markets so as to maintain their global position by. The biggest strength is the maximum brand recognition and largest global market share. However, they have not always been quick to consumer price sensitivity and hence have experience slow erosion in their sales. The majority of companys products are either maturity or growth stage, because Kellogg plans to diversify and offer product extensions to the market. The distribution objective for Kellogg is to have intense distribution so that the competition does

Pricing Strategy Analysis 6 not replace it in case of non availability. 99% of distribution centers are the grocery stores where either the retailers directly or thru wholesalers buy the products. Recommendations: It has been identified that Kellogg has adopted a stubborn attitude towards price change of Cocoa Krispies despite the fact that competition and particularly private labels are grabbing market share mainly because of lower priced products. It has suffered mainly because it committed the mistake of keeping its cost of research and development in mind while setting prices and assumed that the customers will stick to the brand com what may. It has always been the last to change the price as per the competition despite being most of the products in maturity stage at which point competitive pricing has to be the sole adopted strategy. Although the companys approach of charging premium pricing because of being the market leader can earn them profits in the short run at the expense of customers but the long run affect of such approach are detrimental to the companys health. Keeping in view the cut throat competition from the private labels and branded products in the market, extreme price sensitivity of the consumers and lower brand perceived differences by the consumers, Kellogg Cocoa Krispies should develop a very competitive pricing strategy in shape of setting prices closer to the competitors. However, the company cannot beat the prices of private labels because their cost of doing business is a lot lower than Kelloggs. Therefore, in this regard the management should adopt advertising tools to create awareness in the market about the private labels products being less nutritious for the consumers. Such psychology affecting can let Kelloggs get back the lost market share.

Pricing Strategy Analysis 7 NIVEA Visage youngs pricing strategy: NIVEA is a brand name that is associated with superior quality skin care and beauty products. NIVEA Visage young skin care product which helps teen age girls to develop a r skin care routine to which can help their skin to look beautiful and healthy. External analysis The market share of NIVEA Visage Young is 18% which makes it the leader in the market and there is promising growth of 33% and 20% market share in the coming years. The market trends highlight the keen awareness amongst the masses for having healthy skin with less alcohol based medicated products. Consumers: NIVEA Visage Young targets the market of teen age girls. The characteristic of the customer base is high brand loyalty if the products fulfill the need of consumers. Skin care products are perceived to have significant brand differences from the point of view of consumers. The product which gives them satisfying results is always bought at the earliest convenience. The inspiration behind the purchase decision is the desire of young girls to have beautiful skin without using medication. The high brand loyalty is the result of the companys consumer driven strategies. Majority of the purchases are being made by mothers but the influencers of the decision are the teen age girls. Also the purchase decision is affected by personal experience of others who have positive opinions about the product. Competition: The biggest competitive advantage that NIVEA Visage Young has its ability to provide non medical brand image for beautiful skin, where as most of the competitors focus on medical solutions to skin problems for e.g. clean and clear and Garnier.

Pricing Strategy Analysis 8 The major competitors are Body shop, Garnier, Clean and Clear and Ponds which provide innovative new products and timely line extensions hence the competition is fierce. The consumers are not highly sensitive hence it is the quality and the brand perception which makes a company gain or lose the market share. In terms of new entrants the competition is low because the research and development investment is very high along with distribution and marketing costs. It is not an easy task to persuade consumers to switch brands or try new products when it comes to skin care. Internal Analysis: NIVEA always strive to be the innovative market leader and in case of visage it has stuck to its culture and objective by adopting product development strategy to revitalize NIVEA Visage Young by means of better formula, new design and packaging. It also strives to keep its positions stable in the global market hence focuses more on market development so that it can make its presence felt in as many regions as possible. NIVEA has its core competency in the shape of consumer trust and appeal for its products which makes it the largest skin care band in the world. However NIVEA does not focus on cosmetics market which is an area for diversification like its most of the competitors, Garnier, Revlon, Clean and Clear and Loreal have gone into. The product is in the growth stage of its life cycle which requires the company to stress upon the brand differences through advertising and build upon intensive distribution. Distribution: NIVEA Visage Young aims to make widest reach of its products which is sold at retail outlets, drug stores, large grocery super and hyper markets. To be cost effective the company does not sell to small retailers but sells to large wholesalers whose orders are higher in number. NIVEA Visage Young has its production units in other parts of Europe but the central distribution

Pricing Strategy Analysis 9 destination is the United Kingdom. Therefore all the products are carried to the UK by using contract vehicles and these also provide retailer and wholesalers with the product. The company does not sell through its website because at the current stage the cost of small orders is higher for the company to bear. Since the product is in the growth stage, the distribution objective is to make it available at every possible skin care shelf at as many outlets as possible. Recommendations: NIVEA Visage Young pricing strategies focus on the fact that it is a product which can be sold at a little higher price than the competitors provided that there are strong brand differences perceived by the consumers. But the competitors are not small brands therefore if they keep charging premium price for their product they might lose the market. I believe that NIVEA Visage Young is effectively a market leader and by keeping prices affordable for its target market of teen age girls, an added advantage will fall in its court. Customers will feel that they are being given a higher value at a fair price. Moreover, since the product is in growth stage, price penetration price strategy can be of help which is an early low price to make sure that there is a high volume of purchases and market share is quickly grabbed. This encourages consumers to have a first time try and skin care products once suit the consumer remain in the shopping list for a long time. Apple Ipods pricing strategy: Apple Inc has positioned itself as a company which produces stylish, advanced yet simple to use products. Ipod is a great example to further strengthen the brand image of Apple. It is considered as the highest selling portable music player and is the market leader in the product category pf MP3 players.

Pricing Strategy Analysis 10 External environment: The market is characterized by intense diversification and tough competition. Buyers get attracted towards newer line extensions and better features to cater to their needs. The Ipod enjoys 74% market share in hard drive retail market. The market trends indicate that the products which are able to adopt quicker variations in their offerings will be able to grab the lager market share. Innovation is highly valued in this industry. Customers: The customer base of Ipod was initially teenagers, students and travelers. The characteristics of the target market are the desire to have better and technically advanced products, more features in the device and cool image that its portrays of the user. The purchase decision is not random but it is planned with through information gathering because it is not everyday that a buyer will buy such a product. Moreover, brand loyalty is visible in the customer base provided that the product meets their expectations. However, the risk is higher because even if the piece they bought was not able to meet their expectations, the brand image will torment and future purchase will go to the competitors. Competition: The main competitors include Sony, Samsung, iRiver, Sandiskm Creative and Microsoft that produce portable mp3players. The competition is definitely fierce because competitors can back upon two main factors, constant innovation and high price sensitivity by the consumers. However, the reputation of Ipod in the market is unshakable and most of the consumers in portable music appliances end up buying Ipod. The competitors can take advantage of rapid product development and line extensions therefore Ipod has to remain ahead in terms of innovation. Since its a high tech industry, the ability of new players to provide competition is

Pricing Strategy Analysis 11 very low because of high fixed cost in the shape of research and development, and their high inability to take a strong position in the consumers minds. The buyers have a variety seeking behavior and the purchase has a considerable degree of involvement therefore competitors advertise to cerate a strong brand image. Ipod again has an advantage in this regard as it is having the required brand image of being cool and trendy among its target market.

Internal environment: The objective of the company is to maintain its market share with the help of newer product extensions in the shape of more features and style associated with the product. Line extension is a common practice within the industry hence Apple does not want to stay behind therefore it consistently adopts product development. Moreover, marinating a global position requires Ipod to make its presence felt in as many regions as possible. The product is now in its maturity stage when there is strong brand image associated with it. Therefore the company must adopt brand differentiating advertising strategies and price the product competitively so as to knock out the competition. Ipod has its strength in the strong brand image, the pioneer in the category and large consumer base. However, the quality of the parts have been a little disappointing factor for consumers in certain regions but that has been taken by the company with serious concerns. Distribution: The Apple Ipod is made to be available at all the supermarket and hypermarkets. The shelf placement competition is very high in these products. The product being the market leader does not have to make its presence felt but should defend its position by extensive distribution channels so that the product doe not get out of mind by being out of sight. It is not a fast moving consumer item therefore the distribution strategies are made and followed for a considerable

Pricing Strategy Analysis 12 longer period of time. The key to success in distribution strategies is being present at every place where the competition is present.

Recommendations: The pricing strategy that has been adopted by the company was market skimming which means that the product is deliberately set to have higher prices so that people who are willing to buy it will help the product gain revenue (Kotler, 2001). And it did do well for the product. However, at this stage of maturity the product should have competitive pricing so that consumers do not shift to their brands with better features and lower prices. In this regard it is important to keep in mind that the price should also focus on the psychological aspect of the purchase decision. If the prices of Ipod will be kept at the same level of lower quality products then majority will perceive as the quality of Ipod to have gone down. Ipod must make its consumers feel that they are paying a fair price for the value they receive. Moreover, Ipod is a market leader but it should produce variations in the product offering so that the competitors do not take away the market share. It has to defend its market leadership position. Finally, Ipod has lost its sales due to I-phone therefore; the company must make measures to create stark differentiation in both the products through advertising so that the brand image of Ipod is not harmed.

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References: Apple Ipod product information, retrieved 3 November, 2009, from www.apple.com/ipodtouch Apple Defects (2007) Hot iPod reaches 170 Degrees retrieved 3 November, 2009, from http://www.appledefects.com/?cat=7 DSouza S (2005) An Old Lesson on Target Audience the iPod Way, retrieved 3 November, 2009, from http://www.marketingprofs.com/5/dsouza40.asp

Kotler& Armstrong (2001), Principles of Marketing, 9th edn, Prentice Hall International Inc, USA. Nivea Visageyoung product information, retrieved 3 November, 2009, from www.beautyheaven.com.au/.../796-NIVEA-Visage-Young Product information, retrieved 3 November, 2009, from www.kelloggs.com Re-branding a corporate image, the times 100 case studies, retrieved 3 November, 2009, from http://www.thetimes100.co.uk/case_study.php?cID=6&csID=64&pID=2

The use of marketing mix in the product launch, the times 100 case studies, retrieved 3 November, 2009, from http://www.thetimes100.co.uk/case-study--the-use-marketing-mixproduct-launch--87-303-1.php

Pricing Strategy Analysis 14 Using New Product Development to Grow A Brand, The times 100 case studies, retrieved 3 November, 2009, from http://www.thetimes100.co.uk/case_study.php?cID=6&csID=64&pID=3

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