Beruflich Dokumente
Kultur Dokumente
2013-14
PROJECT REPORT
ON
PRICING STRATEGY OF NOKIA
SUBJECT
STRATEGIC MARKETING
BY
NAME OF STUDENT: GAURAV. J. MADYE
COLLEGE SEAT NO :- 15
MASTER IN COMMERCE
( SEMESTER-II )
K.M.AGRAWAL COLLEGE OF
ARTS & COMMERCE, KALYAN (W).
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CERTIFICATE
2
DECLARATION
YEAR:- 2013-14
DATE :-
PLACE :- KALYAN
(GAURAV. J. MADYE)
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ACKNOWLEDGEMENT
GAURAV. J. MADYE
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TABLE OF CONTENTS
TOPICS PAGES
INTRODUCTION .6
IMPORTANCE OF PRICING..8
CONCLUSION..40
REFRENCES 41
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INTRODUCTION
Price is the one element of the marketing mix that produce revenue ; the
other element produce cost, prices are the easiest marketing mix element to
adjust ; product features, channels and even promotion take more time .price
also communicating to the market the companys intended value positioning
of its product or brand.
Many companies do not handle pricing well. They make these common
mistakes; price is to cost-oriented ; price is not revised often enough to
capitalize on market changes; price is set independent of the rest of the
marketing mix rather than as an intrinsic element of marketing
positioning strategy; and price is not varied enough for different product
item ,market segmentation , distribution channels, and purchase
occasions.
Price is also the marketing variable that can be changed most quickly,
perhaps in response to a competitor price change.
Put simply, price is the amount of money or goods for which a thing is
bought or sold.
Perceived benefits are often largely dependent on personal taste (e.g. spicy
versus sweet, or green versus blue). In order to obtain the maximum possible
value from the available market, businesses try to segment the market
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that is to divide up the market into groups of consumers whose preferences
are broadly similar and to adapt their products to attract these customers.
(1) Increasing the benefits that the product will deliver, or,
For consumers, the PRICE of a product is the most obvious indicator of cost
- hence the need to get product pricing right.
IMPORTANCE OF PRICING
When marketers talk about what they do as part of their responsibilities for
marketing products, the tasks associated with setting price are often not at
the top of the list. Marketers are much more likely to discuss their activities
related to promotion, product development, market research and other tasks
that are viewed as the more interesting and exciting parts of the job.
Yet pricing decisions can have important consequences for the marketing
organization and the attention given by the marketer to pricing is just as
important as the attention given to more recognizable marketing activities.
Some reasons pricing is important include:
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marketing organization losing revenue. Prices set too low may mean the
company is missing out on additional profits that could be earned if the
target market is willing to spend more to acquire the product.
Additionally, attempts to raise an initially low priced product to a higher
price may be met by customer resistance as they may feel the marketer is
attempting to take advantage of their customers. Prices set too high can
also impact revenue as it prevents interested customers from purchasing
the product. Setting the right price level often takes considerable market
knowledge and, especially with new products, testing of different pricing
options.
Trigger of First Impressions - Often times customers perception of a
product is formed as soon as they learn the price, such as when a product
is first seen when walking down the aisle of a store. While the final
decision to make a purchase may be based on the value offered by the
entire marketing offering (i.e., entire product), it is possible the customer
will not evaluate a marketers product at all based on price alone. It is
important for marketers to know if customers are more likely to dismiss
a product when all they know is its price. If so, pricing may become the
most important of all marketing decisions if it can be shown that
customers are avoiding learning more about the product because of the
price.
Important Part of Sales Promotion Many times price adjustments is
part of sales promotions that lower price for a short term to stimulate
interest in the product. However, as we noted in our discussion of
promotional pricing in Part: 15: Sales Promotion tutorial, marketers
must guard against the temptation to adjust prices too frequently since
continually increasing and decreasing price can lead customers to be
conditioned to anticipate price reductions and, consequently, withhold
purchase until the price reduction occurs again.
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Some of the more common pricing objectives are:
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SETTING PRICING POLICY
When Sony introduced the worlds first high definition television (HD-
TV) to the Japanese market in 1990, the high-tech sales cost $43000.This
television were purchased by customers who could afford to pay a high
price for the new technology. Sony rapidly reduced the price over the
next three years to attract new buyers, and by 1993a 28-inch H-D tv cost
Japanese buyers just over $6000.In 2001 a customer cold buy a 40-inch
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H-D TV for about $2000.A price many could afford. In this way, Sony
skimmed the maximum amount of revenue from the various segments of
the markets.
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TYPES OF COSTS AND LEVELS OF PRODUCTION:
A companys costs take two firms, fixed and variable. Fixed costs (also
known as over head) are costs that do not vary with production or sales
revenue. Accompany must pay bills each month for rent , heat, and trust,
salaries, and so on , regardless of output .
Variable costs vary directly with the level of production. For
example, each hand calculator produced by Texas Instruments involves a
cost of plastic, macro-processing chips, packaging, and the like. These
costs tend to be constant per unit produced; they are called variable
because their total varies with the number of unit produced.
Total cost consists of the sum of the fixed and variable costs
for any given level of production. Average costs is the cost per unit at
that level of production; if is equal to total cost divided by production.
Management wants to charge a price that will at least cover a total
production cost at a given level of production.
ACCUMULATED PRODUCTION:
TARGET COSTING
Costs change with production sale and experience. They can
also change as a result of concentrated efforts by designers, engineers and
purchasing agents to reduce them.
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STEP 4: ANALYZING COMPETITORS COSTS,
PRICES, &OFFERS:
Within the range of possible prices determined by market
demand and companys costs, a firm must take the competitors costs,
prices, and possible price reactions into account. The firm should first
consider the nearest competitors price. If the firm offers contains
positive differentiation features not offered by the nearest competitors,
their worth to the customer should be evaluated and added to the
competitors price. If the competitors offers contains some features not
offered by the firm, their worth o the customer should be evaluated and
subtracted from the firms price. Now the firm can decide whether it can
charge more, the same, unless than the competitor. A firm must be aware,
however, that competitors can change their prices in reaction to the price
set by the firm.
Given the three cs- the customers demand schedule, the cost
function, the competitors prices- a company is now ready to select a
price.
Companies select a pricing method that includes one or more of
various considerations. We will examine seven price setting methods:
mark-up pricing, target return pricing, perceive value pricing, value
pricing, going rate pricing, action type pricing and group pricing.
MARK-UP PRICING:
The most elementary pricing method is to add a standard
mark-up to the products cost. Construction companies submit job bids
by estimating the total project cost and adding a standard mark-up for
profit.
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Suppose a toaster manufacture has a following cost and sale expectation
TARGET-RETURN PRICING:
In target return pricing the firm determines the
price that would yield its target rate of return on investment (ROI). Target
pricing is used to general motors, which price its auto-mobiles to achieve
a 15-20 percent ROI.
PERCIVED-VALUE PRICING:
In increasing number of companies based their price on
the customers perceived value. They must deliver the value promised by
their value proposition, and the customer must perceived this value. They
use the other marketing mix elements, such as advertising and sales
force, to communicate and enhance perceive value in buyers mind.
VALUE-PRICING:
In recent years, several companies have adopted value
pricing, in which they win loyal customers by charging a fairly low price
for a high quality offering. Among the best practitioners of value pricing
are WALL-MART, IKEA, and SOUTH-WEST airlines.
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GOING RATE-PRICING:
In going rate pricing, the firm basis its price largely on
competitors prices. The firm might charge the same, more, or less than
major competitors. In oligopolistic industries that sell a commodity such
as steel, paper, or fertilizers, firms normally charge the same price.
GROUP PRICING:
The internet is facilitating methods where by consumers are
business buyers can join groups to buy at a lower price. Consumer can go
to volumebuy.com to buy electronics, computers, subscriptions, and
another item.
PHYSIOLOGICAL PRICING:
Many customers use price as an indicator of quality. Image pricing is
especially effective with ego-sensitive products such as perfumes and
expensive cars.
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GAIN-RISK-SHARING PRICING:
Buyer may resist accepting a sellers proposals because of the high perceive
level of a risk. The seller has the option of offering to absorb part or all of
the risk if he does not deliver the full promised value.
*Brands with average relative quality but high relative advertising budgets
were able to charge premium prices.
The factors that businesses must consider in determining pricing policy can be
summarized in four categories:
(1) Costs
In order to make a profit, a business should ensure that its products are
priced above their total average cost. In the short-term, it may be acceptable
to price below total cost if this price exceeds the marginal cost of production
so that the sale still produces a positive contribution to fixed costs.
(2) Competitors
If the business is a monopolist, then it can set any price. At the other
extreme, if a firm operates under conditions of perfect competition, it has no
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choice and must accept the market price. The reality is usually somewhere in
between. In such cases the chosen price needs to be very carefully
considered relative to those of close competitors.
(3) Customers
To maximize profits
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3. Competition. Pay attention to them, but don't copy them . . . when it
comes to pricing strategy they may have no idea what they're doing.
4. Product Lifecycle. How you price, and what value you provide for
that price, will change as you move through the product lifecycle.
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Align with the Product Life Cycle
How high or low you set your price is also going to be driven by where your
product is in its life cycle. In general, the farther along you go toward the
Decline phase the lower your price should be, since your market will be (a)
saturated with product and (b) have increased price sensitivity as their
knowledge of the products increases. One technique to consider is
unbundling support, training and services from the product itself, which will
allow you to lower price without discounting.
Pricing strategies usually change as the product passes through its life cycle.
The introductory stage is especially challenging. Companies bringing out
new product face the challenge of setting prices for the first time
1 ) Market-skimming pricing
The practice of price skimming involves charging a relatively high price
for a short time where a new, innovative, or much-improved product is
launched onto a market.
The objective with skimming is to skim off customers who are willing to
pay more to have the product sooner; prices are lowered later when demand
from the early adopters falls.
High prices can be enjoyed in the short term where demand is relatively
inelastic. In the short term the supplier benefits from monopoly profits, but
as profitability increases, competing suppliers are likely to be attracted to the
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market (depending on the barriers to entry in the market) and the price will
fall as competition increases.
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2) Market-Penetration pricing
Penetration pricing involves the setting of lower, rather than higher prices in
order to achieve a large, if not dominant market share.
This strategy is most often used businesses wishing to enter a new market or
build on a relatively small market share.
This will only be possible where demand for the product is believed to be
highly elastic, i.e. demand is price-sensitive and either new buyer will be
attracted, or existing buyers will buy more of the product as a result of a low
price.
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PRODUCT-MIX PRICING STRATEGIES
The strategy for setting the products price often has to be changed when
the product is part of a product mix. In this case the firm looks for a set of
prices that maximizes the profit on the total product mix. Pricing is
difficult because the various products have related demand and cost and
face different degrees of competition:
Product Line: Setting price steps between product line items (for example.
Honda Civic is implementing product line pricing strategy for their cars as
they are offering different models of same line for different prices with
different features)
Captive Product: Pricing products that must be used with the main product
(for example. Colgate offering its toothbrush along with its toothpaste.or
Gillette offering set of additional blades with its razors)
By-Product: Pricing low value by product to get rid of them (for example.
Many companies obtain soap during the refining process of cooking oils
and then manufactures beauty soaps and sells it along with the cooking oils
as their by-products. As Unilever is obtains Lux through Dalda)
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PRICE ADJUSTMENT STRATEGIES
A company usually adjusts their basic prices to account for various
customers differences and changing situations. Here we examine the six
price adjustment strategies.
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*FOB Origin Pricing: Geographical pricing strategy in which goods are
placed free on board a career, the customer pays the freight from the factory
to the destination. (For example. A person buying a compact disc from
abroad in which he have to pay the transport expense for bringing it in
access)
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SETTING THE PRICE
A firm must set a price for the first time when it develops a new
product, when it introduces its regular product into a new distribution
channel or geographical area, and when it enters bids on new contract work.
The firm must decide where to position its product on quality and price. In
some markets, such as the auto markets, as many as eight price points can be
found.
SEGMENT EXAMPLE
Ultimate Rolls-Royce
Gold standard Mercedes Benz
Luxury Audi
Special need Volvo
Middle Buick
Price alone Kia
Figure 16.1 shows nine price quality strategies. The diagonal strategies
1,5,and 9 can all co-exit in the same market; that is , one firm offer a high
quality product at a high price , another offers an average quality product at
an average price and still another offers a low quality product at a low price.
All three competitors can co-exit as long as the market consists of three
sgroups of buyers: those who insist on quality, those who insist on price, and
those who balance the too.
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PHILIP KOTLER HAVE IDENTIFIED 9 PRICE QUALITY
STRATEGIES:
PRICE
4.OVER-
5.MEDIUM-VALUE 6. GOOD-VALUE
CHARGING
STRATEGY STRATEGY
STRATEGY
MEDIUM
LOW
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is not always realistic. For instance, product pricing may depend heavily
on the productivity of a manufacturing facility (e.g., how much can be
produced within a certain period of time). The marketer knows that
increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the products price. But
increasing productivity may require major changes at the manufacturing
facility that will take time (not to mention be costly) and will not
translate into lower price products for a considerable period of time.
External Factors - There are a number of influencing factors which
are not controlled by the company but will impact pricing decisions.
Understanding these factors requires the marketer conduct research to
monitor what is happening in each market the company serves since the
effect of these factors can vary by market.
Pure Competition:
Manyprice
on the going market buyers and sellers
range of prices
Oligopolistic Competition:
Pure Monopoly:
Few sellers who are
Market consists of a
sensitive to each others
single seller
pricing/marketing strategies
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Cost-Plus Pricing
Competition-Based Pricing
Going-Rate Pricing:
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Several circumstances might lead a firm to cut prices one is
exceed plant capacity: the firm needs additional business and cannot
generate it throw increased sales efforts, a product importance, or other
majors. It may resort to aggressive pricing, but in initiating a price cut, the
company may trigger a price war. Another circumstance is declining market
share. A general motor, for examples, cuts its sub-compact car prices by 10
percent on the west coast when Japanese competition kept making in roads.
*Low quality trap: Customer will assume that the quality is low
*Shallow-pocket trap: The higher price competitors may cut their prices
and may have longer staying power because of deeper cash reserves.
A successful price increase can raise profit considerably for example: if the
companys profit margin is 3 percent of sales, 1 percent price increase will
increase profit by 33 percent if sales volume is unaffected.
A major circumstance provoking price increases is cost
inflation .rising cost unmatched by productivity gains squeeze profit margin
and lead companies to regular rounds of price increases. Companies often
raise their price by more than the cost increases ,in anticipation of further
inflation or government price control, in a practice called anticipatory
pricing.
CUSTOMER REACTION:
Customer often question the motivation behind price changes, a
price cut can be interpreted in different ways : The item is about to be
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replaced by a new model ; the item is faulty and is not selling well ; the
firm is in financial trouble ; the price will come down even further ; the
quality has been reduced. The price increase, which could normally deter
sales, may carry some positive meaning to customers: the item is hot
and represents and usually good values.
COMPETITORS REACTION:
Competitors are most likely to react with the number of firms
are few, the product is homo-genius and buyers are highly informed.
Maintain price: A leader might maintain its price and profit margins,
believing that (1) it would lost too much profit if it reduces its price
(2) it would not lost much market share, and (3) it could regain market
share when necessary.
Maintaining price and add value: The leader could improve its
products and services, communication. The firm may find it cheaper
to maintain price and spend money to improve perceived quality then
to cut price and operate at a lower margin.
Reduced price: A leader might drop its price to match the
competitors price. It might do so because (1) its cost falls with volume
,(2) it would lost market share because the market is price sensitive,
(3) it would be hard to rebuild market share once it is lost. This action
will cut profit in the short-run.
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Case Study Analysis on
Pricing Strategy of NOKIA
History and growth of mobile phone industry in India
The real transformation came in the scenario of Indian telecom industry after
announcement of National telecom policy in 1994. The mobile services were
commercially launched in India in August 1995. In the initial 56 years the
average monthly subscribers additions were around 0.05 to 0.1 million only
and the total mobile subscribers base in December 2002 stood at 10.5
millions. However, after the number of proactive initiatives taken by
regulator and licensor, the monthly mobile subscriber additions increased to
around 2 million per month in the year 2003-04 and 2004-05. In the last few
years there has been a huge exponential growth with addition of about 10 to
15 million subscribers per month to customer base. In the initial days of
mobile phone in India in mid 1990s the grey market accounted for 80 per
cent of the mobile phone sales due to a huge price differential between the
legally imported and the grey market phones.
Even as the government slashed the duties at the same time various mobile
manufacturers reduced their rates to induce the customers to buy a phone
from authorized phone shop. Today the grey market comprises very small
share of market.
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imported unbranded Chinese mobiles which are avaible with lot many
features of a typically high end say Nokia mobile but, at a substantially
lesser price. After the initial dominance of Nokia from 1990s till 2002, a
change occurred in Indian market hen CDMA technology was launched in
the year 2003. At this point the Korean brands namely Samsung and LG
established themselves after they tied up with CDMA operator Reliance
Infocomm. This was a breakthrough in Indias mobile phone industry since,
people were able to get mobile phones with Reliance connection only for a
initial cost of about Rs. 500/-. This opened up a mass market for mobile
manufacturers in India.Gradually all the major players like Nokia, Motorola
came up with their CDMA models and have been able to regain their market
share. In the last few years India has witnessed a revolution in mobile phone
market with about 8 to 10 million subscribers being added to the customer
base each month. The major reasons for this boom have been:
1. Falling tariff rates of telecom service providers .
2. Fall in the prices of mobile handsets.
3. Increase in the reach of service providers covering ever nook and corner
of the country.
Above figures clearly indicate that although mobile phones might have made
significant inroads into the urban market & urban market may start moving
towards saturation but, still lot of potential is to be explored in the rural
segment Also to understand the satisfaction level which users of above
brands express, we look at a consumer satisfaction survey, the results of
which are shown below.The
survey was done on Indian Urban mobile phone users with Sample size of
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N=5,775.
The result shows Nokia users are the most satisfied with their product
followed by Sony-Ericsson and LG. The results of above survey are
important since, mobile phone is a device which is frequently replaced in
few years time, so, the brand which provides maximum satisfaction to users
will be able to maintain high loyalty and hence, maintain its market share.
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2.On the other hand there are players like Usha lexus whose product fall in
the lower category with their products being available in price range of
minimum of Rs. 1,900/- to maximum Rs. 5,900/-. Also, Virgin mobile falls
in the same category.
3. Players like Onida have mobiles in lower prices (Rs. 2,000/-) to middle
price range (till Rs.9, 900/-).
4. Players like Motorola, Nokia, LG and Sony Ericsson have mobile phones
avaible in all different price range and hence, are able to target all the
different segments of the market.
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enjoyed cheap manpower costs and proximity to the rapidly growing Asia
Pacific markets. Besides, Nokia was the market leader in mobile
communication devices in India. The company has been carrying out sales &
marketing, customer care and research & development activities in the
country. Nokia considers India to be one of its most important markets. The
company's Code Division Multiple Access (CDMA) 5 facilities is located in
Mumbai and provides software and technical support to CDMA consumers
in India and other Asia Pacific countries. In 2004, Nokia was chosen as the
most respected consumer durables company by Businessworld6. The
magazine wrote, This Finnish Companys debut at the top of the heap says
two things.
In the late 1970s, Nokia started taking an active interest in the power and
electronics businesses and by 1987, consumer electronics became Nokia's
major business. Nokia created the NMT mobile phone standard in 1981 and
launched the first NMT phone, Mobira Cityman, in 1987. The company
delivered the first GSM network to Radkilinia, a Finnish company in 1991,
and in 1992, Nokia 1011 a precursor for all Nokia's current GSM phones -
was introduced.
Nokia was quick to learn from its mistakes and adopted strategies to regain
its lost market share. Globally, during the first quarter of 2005, the
company's sales reached 7.4 billion euros, with the company selling 54
million phones during the period. In India, Nokia continued its leadership in
GSM with a market share of 74% in March 2005. Nokia also surpassed
Samsung in color mobiles in the GSM segment, recording a share of 55% in
the same month Nokia reorganized itself at the global level in 2004. At this
point, a multimedia division was formed.
MARKET SEGMENTATION
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PRICING STRATEGY OF NOKIA
SKIMMING PRICING:
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CONCLUSION
The scope of the research paper was to discuss the concept on global
communication strategy adopted by various Indian and Global Companies
while entering the foreign market. This analysis and discussions has been
administered by selecting certain successful foreign Companies from the
Fortune 500, 2011 listing and other successful Indian Companies which have
made a mark in India and foreign market. This concept and discussion can
be extended through primary data collection methods to further strengthen
the topic into various dimensions of global, local and global strategic
implementation.
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BIBLOGRAPHY
REFERENCES:
www.google.com
www.wikipedia.com
www.yahoo.com
www.bcg.com
www.tutor2u.com
www.echeats.com
www.knowthat.com
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BOOKS:
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