Introduction
A firm has to determine the price to charge for its products and services to remain competitive in the market. Thus, it is essential to develop an appropriate pricing strategy based on the competitors’ prices and the demand for the product or service in the market (Best, 2005). The following discussion analyzes the applicable pricing strategy for Richmond Plastics.
Product Prices
The proposed product price will be based on the quantity bought and the size of the plastic bags. It cost more to manufacture large-size plastic bags compared to small-size plastic products. The cost of making one large-size plastic container is estimated to cost $0.30, $0.10 for small containers and $0.20 for medium size containers. The large, medium and small containers will be sold for $2, $1.5, and $1 respectively.
These prices will be for the consumers who purchase in bulk since it reduces the cost of warehousing, hence the low price (Hill, 2008). The prices will be different for consumers who wish to buy small quantities of the firm’s products. The company will charge $3, $2.5, and $2 for large, medium, and small containers respectively. The prices are developed based on the company’s profitability plan that aims at reducing the time taken to realize the return on investment. In addition, the strategy will help the firm in realizing its Break-Even Point in less than two years.
The enterprise also intends to offer discounts to customers who purchase plastic products from the firm. Any customer who purchases products worth more than $3000 will receive a 15% discount. The aim of this strategy is to encourage consumers to purchase more products by providing incentives.
Pricing Strategy
The aim of a pricing strategy is to develop an effective plan that will enable the firm to make profits, motivate consumers to purchase the product and enable the firm to compete effectively in the market. The pricing plan is to ensure that customers receive discounts based on the goods bought and the size of the product. In addition, the strategy ensures that the firm makes profits by factoring the production cost other costs involved in producing, storing, and distributing the products.
This will enable the firm to gain revenue to cover its expenses and provide returns for the stakeholders (Smith, 2012). The pricing strategy also factors both direct and indirect firm’s competitors. Other organizations in the market, offer the products at an average price of $4 per unit. The prices suggested will enable the firm to capture the market demand, which will enable the sales level will increase. Consumers in the market are influenced by product prices. Thus, the strategy will influence consumer behavior by encouraging them to purchase the firm’s plastic products. The pricing strategy also factors regulations in the country’s laws such as tax law (Armstrong & Kotler, 2015). The price includes product taxes. This ensures that the firm shares the tax burden with the consumers of the products.
Channels of Distribution Profitability Strategy
The firm aims at selling its products through its established stores in the market. The aim of this strategy is to reduce the extra cost incurred by involving other parties in the distribution channel (Mills, 2002). The only expense that the firm will face is transportation costs to its stores and consumers’ residence or businesses. The after-sales services aim at ensuring customer loyalty and improving their experience in the firm. The strategic positioning of the firm’s stores in the market will enable it to reach many customers.
Competitors Prices Comparison
When developing a pricing plan, it is salient to determine the competitors’ prices. In addition, one has to determine the competitive strategy the firm intends to adopt to enable it to compete effectively. Competition strategy can be achieved by improving product quality, differentiating the goods, or reducing product prices. In this case, the firm intends to market itself by offering its products at a low price. The company’s competitors have higher prices compared to the proposed product prices.
The enterprise will manage to provide its products at a low price by reducing its fixed and variable costs (Jensen, 2013). This can be achieved by eliminating unnecessary activities in the operation stage. In addition, the low pricing of the firm products is expected to increase sales volume, which will, in turn, reduce storage costs. The pricing strategy covers the fixed cost and variable cost incurred in the production process (Payne, 2012). There is still room to increase product prices in the future after winning the target market. This is because there is a huge gap between the firm and its competitor’s product prices.
Conclusion
Prices are key factors in attracting the target market of a company. Richmond Company will benefit from the proposed marketing strategy since it will enable it to increase its market size and to make profits. In addition, the strategy will enhance the enterprise competitive position since its product prices will below. It is essential to compare competitors’ prices to determine the favorable price.
References
Armstrong, G., & Kotler, P. (2015). Marketing: An Introduction. Boston: Pearson.
Best, R. (2005). Market-Based Management: Strategies for Growing Customer Value and Profitability. Upper Saddle River: Pearson/Prentice Hall.
Hill, C. (2008). Strategic Management: An Integrated Approach. Boston: Houghton Mifflin.
Jensen, M. (2013). Setting Profitable Prices: A Step-By-Step Guide to Pricing Strategy Without Hiring a Consultant. Hoboken: John Wiley & Sons.
Mills, G. (2002). Retail Pricing Strategies and Market Power. Melbourne: University Press.
Payne, J. (2012). Managing Indirect Spend: Enhancing Profitability Through Strategic Sourcing. Hoboken: Wiley.
Smith, T. (2012). Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures. Mason: South-Western Cengage Learning.