MARKETING MODULE 5

Marketing Module 5: Pricing



Marketing Module 5: Pricing

Introduction

Revising the past learning, the marketing mix is prepared keeping in view the fresh food and canned food companies. A 360 degree promotional plan is selected, the distribution plan is set according to the locality segmentation, the product features are relevant to the production . the canned food One of the significant elements of the marketing mix is pricing. It is an important strategic consideration because it is related to product positioning. It affects other marketing elements like channels, promotions, and product features. There is no single method of determining of the pricing; however, the companies use one or the combination of pricing strategies. The paper discusses the pricing strategies of fresh food and canned food companies. It contrasts the two strategies based on different pricing methods.Fresh Food CompanySetting PriceVariable Cost PricingOne of the preferable pricing strategy for fresh food company is the variable cost pricing. Variable costs are directly related to sales. As the sales go down, the variable cost do down as a result. The variable cost is the cost of raw materials, labor or sometimes advertising and promotions. A good way for a company to save money is to reduce the variable cost. The fresh food company's variable cost may include the items like flour, sugar, food preservatives, and other categories, the price of which keeps changing based on demand. Another reason for which the variable pricing is used is that, the fast-food company has price discrimination in the form of segmentation (Nagle, 2005). The Calculations of variable cost pricing is given in the appendices.

Temporary Price PromotionsTemporary price promotions will be a worthwhile idea when a new product line is introduced. There are multiple ways of earning profits and sales growth and several reasons for offering price promotions. Such programs are aimed at affecting the behavior of the consumers, the potential customers, distributors and retailers. The reasons for which the price promotions will be used are:

To acquire new customers by generating trial.

To appeal new segments who are price sensitive.

To gain trade accounts (Smith, 2011).

Price DiscriminationThis segmentation will be the location or customer's identity. Their ability to pay will determine the prices at various locations. The product quantity and quality will be addressed based on this segmentation. The company will target the various consumers' classes. For instance, students and senior discounts lie under this differentiation. Both these segments will have different willingness to pay. The company will do so because the senior or student has a more elastic price elasticity of demand. The fresh-food company will be able to capture more market surplus than would be possible without price discrimination. (Smith, 2011).

Expected profits

Profit and Loss

Year 1

Year 2

Year 3

Sales

$491,000

$567,105

$655,006

Gross Margin

$414,250

$478,459

$552,620

Expenses

Payroll

$260,800

$273,840

$287,532

Sales and Marketing

$27,000

$35,200

$71,460

Depreciation

$60,000

$69,000

$79,350

Utilities

$1,200

$1,260

$1,323

Total Operating Expenses

$349000

$379300

$439665

Profit Before Interest and Taxes

$26,130

$58,083

$69,825

EBITDA

$86,130

$127,083

$149,175

Interest Expense

$10,000

$9,500

$8,250

Net Profit

$13,019

$36,437

$45,925

Net Profit/Sales

2.65%

6.43%

7.01%

As shown in the profit and loss statement for three years, it is clear that the company's profits will increase by the passage of time. It will be a clear sign to continue the variable pricing strategy because the profits can upset any future change in the cost of raw materials, thus, providing a competitive, operational ...