Reds Marketing Tips

Reds regularly creates Marketing Tips for users who would like to increase, and perfect their marketing campaigns.
3 minutes reading time (635 words)

Pricing Policy (Part 3)

How to change prices
To change prices once the product has been established is a very important strategic decision as inevitably the brand loses market share through consumer resistance to the price increase.

Pricing Reds TipsThe main determinants of price changes are:

The price paid by the customer:
an increase for the dealers' margin
budget for advertising and promotion
an increase in fuel and inflation adds to the cost of selling and distribution
carrying extra inventory costs in the hope of selling more over holidays, i.e. Christmas

Price received by manufacturer:
ability to buy bulk raw materials
increase in manufacturer margin
marketing paid by the manufacturer for selling and advertising to double the awareness for the brand
research and development is ongoing with new capital
search other suppliers for procurement possibilities

How to increase prices
There are four ways in which your company can increase total profit:
            Increase sales volume through aggressive advertising and promotion
            Cutting costs - economies of scale
            Raising prices for the market - a market leader can increase prices without jeopardizing market share
            Raising prices for resellers - increase prices or reduce reseller mark-ups, discounts and allowances

To increase internet marketing prices:
Identify supply and demand imbalances. To take full advantage of the Internet's flexibility, companies need to spot the shifts in supply and demand that could trigger profitable price changes. Many companies already collect this information for operational purposes, but it's rarely passed along to the pricing group quickly enough to be useful. There is a need for greater coordination to allow pricing and marketing managers to identify these opportunities.

Create an entrepreneurial pricing group. Few pricing organizations are set up to exploit the full potential of e-pricing. This is especially true of incumbent players that have only started to sell online; their online and offline pricing strategies usually look exactly the same. Start-up e-businesses often suffer from a related problem for a different reason—they never developed any sort of pricing capabilities in the first place.

To improve online pricing, companies need to replace traditional pricing groups with a new, entrepreneurial pricing organization that is more strategic. It probably should sit at a higher level of the organization than pricing groups generally do, too, so that it has the authority to experiment constantly, to change prices, and to adapt quickly to shifting circumstances. This group will be more analytical, more streamlined, faster and more flexible.

As Internet companies struggle to become profitable, improved pricing represents a large and as-yet-untapped opportunity. By taking full advantage of the unique possibilities afforded by the Internet to set prices with precision, adapt to changing circumstances quickly, and segment customers accurately, companies can get their pricing right. It's one of the ultimate keys to e-business success.

Trade Mark-up:
The final option, that of reducing the trade mark-up, is the most neglected strategy, but one that can be the most powerful method of improving profits.

There are three ways in which a manufacturer can reduce reseller mark-ups. The first is by coercive power where the manufacturer threatens to terminate a relationship. This approach is rarely successful as it undermines the relationship. The second is by seeking a reduction in mark-ups but not affecting the reseller's profitability. The third way is to create a strong customer pull by using strong brands that offer small margins rather than weak ones.

Another alternative is to explore the dealer's value chain. It may pay the manufacturer to take over some of these activities and negotiate a lower margin with the reseller. The manufacturer takes on some distribution and wholesaling tasks and can support any selling or promotional activities.

One increasingly popular method of offering economic value to distributors is by carrying less stock. This involves the manufacturer increasing the efficiency of its delivery, production and order processing systems.

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Pricing Policy (Part 2)
New product development process