Competitiveness strategies
This paper is going to address two companies (Dell and Hewlett Packard (hp)). These two organizations operate in the same market manufacturing and selling of computers. The paper shall analyze the market strategies that are applied by each of the company and give a comparison of the two strategies and see which one is the most effective.
The pricing marketing strategy
Price constitutes one of the major aspects of the marketing mix. Pricing is a vital strategic aspect, because it is linked to the product positioning. In addition, pricing has an impact on other elements of the marketing mix, like channel decisions, product features and promotion. The computer manufacturing company Dell relies much on the pricing strategy as compared to their hp counterparts who apply the innovation strategy of marketing (Kent 2003 38).
The Dell company applies the following steps in determining the price of a new commodity the development of a marketing strategy here they perform the market assessment, targeting, segmentation and positioning the marketing mix decision making here they give a definition of the product and come up with promotional and distribution tactics the demand curve estimation here they get a clear understanding of how the quantity demanded relates to price the cost calculation here they consider both variable and fixed costs that the product entails the understanding of environmental aspects they assess the most likely actions of the competitor and learn about the legal constraints the setting of the price objectives here they consider aspects like revenue maximization, maximization of profit and stabilization of the price and Price determination they use the available information from the previous steps to choose a method of pricing, come up with a pricing structure, and describe discounts.
Before the development of the product, there is formulation of a market strategy, including the choice of a target market as well as product positioning. There is always a trade off between quality of the product and price, therefore price is a vital element in positioning. Due to the inherent trade offs between elements of market mix, determination of the price depend on other products, promotion and distribution decisions (Griffith and Gray 2002 62).
Due to the relationship between the quantity demanded and the price, the Dell Company sees the necessity of understanding the effect of pricing on sales by approximating the demand curve for the commodity. For existing commodities, experiments can be conducted at prices below and above the recent price in order to come up with the demand elasticity of price. Inelastic demand shows that price increment can be feasible.
If the company has chosen to launch a commodity, there likely is at least a fundamental understanding of the associated costs, or else, making of the profit may be difficult. The unit cost of the commodity determines the lower price of what the company can charge, and sets the profit margin at prices that are high. The entire unit cost of manufacturing a product is composed of the variable cost of manufacturing every additional unit and fixed costs that are undertaken without paying regard to the quantity produced.
The pricing strategy applied by the Dell Company takes into account the legal and competitive environment in which it operates. From a competitive point of view, the company considers the insinuations of its pricing on the competitors price decisions. For instance, setting a very low price may bring about a price war that may not benefit any side. Setting a price that is too high may attract a significant number of competitors who are willing to get a share of the profits.
From the legal point of view, the Dell Company is not at liberty to set the price of its products at any level it wants. For instance, there may be price constraints that deter setting a very high price of a commodity. Setting a very low price may be taken as predatory pricing as far the international trade is concerned. Offering dissimilar prices to different consumers may tamper with the price discrimination laws. Also, conspiracy with competitors to come up with a fixed level of the price of a product is not allowed in some countries.
According to Kotler (1986 114), the company identifies its pricing objectives so as to determine the most favourable pricing. Some of the objectives include the following
Current maximization of profit this aims at maximizing the current profit by considering revenue as well as costs. Maximization of the current profit may not be an optimal objective if it leads to long-term profits that are low.
Maximization of the current revenue this aims at maximizing the current revenue regardless of the profit margins. Usually, the main objective is to maximize profits that are long-term by raising the market share and reducing the costs.
Quantity maximization this aims at maximizing the quantity of units that are sold or the quantity of customers that are attended to so as to reduce the long-term costs that are usually reflected on the experience curve.
Profit margin maximization - here, the company aims at maximizing the unit profit margin, and recognizing that the quantities might be low.
Quality leadership the price is used to indicate high quality in trying to position the product as a quality manager.
Survival in conditions such as market reduction as well as overcapacity, the objective may be to choose a price that will take into consideration the costs and allow the company to remain within the market. In such a case, survival may be given the first priority as compared to profits therefore this is a temporary objective.
For products that are new, the pricing objectives usually is either to maximize the market share or to maximize the profit margin. To meet this, the Dell Company uses the penetration as well as the skim pricing strategies. The penetration pricing strategy applies the objective of quantity maximization by the use of a low price. This kind of pricing is usually used when
There is a risk of an imminent competition
The demand is anticipated to be very elastic customers are sensitive about price and the demanded quantity will rise remarkably as the price reduces.
The nature of the product can get significant appeal within a short time.
Extensive reductions in costs are anticipated due to increases in cumulative volume.
As the product life cycle continues, there likely will be alterations in the costs as well as the demand curve. Due to this the company re-evaluates its pricing policy over time. The pricing objective can be determined by a number of factors such as existence of economies of scale, cost of production, product differentiation, and barriers to entry, the available resources and the rate of product diffusion.
Skim pricing is a strategy that tries to glide the cream off the market by setting a high price and selling to those consumers who are less sensitive about price. Skimming is a technique applied to address the profit margin maximization objective. This strategy is usually applied when
The demand is anticipated to be less elastic that is, price sensitivity of the customers is not very high.
Big cost savings are not anticipated at larger volumes, or it is hard to foretell the cost savings that would be attained at larger volume.
The organization lacks the resources to run the extensive capital expenses required for large volume production with previously low profit mains.
Pricing methods
To set appropriate pricing that achieves the objectives of pricing, the managers of the Dell Company use several methods of pricing. They include, cost-plus pricing which determines the price at the cost of production plus some profit margin target return pricing sets the price to obtain a return-on-investment target value based pricing this sets the price by basing on the efficient value of the customer in relation to alternative commodities psychological pricing sets the price basing on factors like product quality signals, famous price points and the consumers perception of what is fair.
In addition to price level setting, the administrators of the company have the chance to formulate innovative pricing techniques that appropriately meet the needs of both the customer and the company. For instance, software was conventionally purchased as a commodity in which the consumers made a one-time payment and got a continual license to the software.
According to Ford (2002 125), many suppliers of software have altered their pricing techniques to a subscription technique in which the consumer subscribes for a specified period like one or two years. Thereafter, the subscription had to be renewed for the software to function. This technique provides stability to both the customer and the supplier because it decreases the large alterations in cycles of software investment.
Price discounts
The usually quoted price to consumers is referred to as the list price. This price is normally discounted for some consumers and other members of channel distribution. There are many types of discounts that are used by the administrators of the Dell Company.
Cumulative quantity discount this is a discount that increases with an increase in cumulative quantity. These discounts may be offered to retailers who buy commodities in large quantities over time but who do not want to give individual orders that are large. Seasonal discount it bases on the time the transaction was made and it aim to reduce the seasonal disparity in sales. For instance the Dell company offer off-season rates that are much lower. Such discount does not necessarily require to be based the period of the year they can also be based on the time of the day or day of the week.
Trade discount this is a functional discount which is issued to members of the channel for the duties they perform. For instance, a trade discount may be given to a small business owner who may not be in a position to buy goods in large quantities but however plays an important role.
Cash discount this is offered to those customers who settle their bills early enough.
Competition through innovation
There are some companies that embrace innovative marketing techniques rather than price marketing skills. A company like Hewlett Packard (hp) uses innovative ideas to deal with its competitors. With hp, the employees form the largest source of competitive advantage. The company focuses not only attracting and retaining talented individuals but it also involve them in delivering to their bottom line. However, the talented employees of today look at themselves as mobile and the controllers of their careers in the future.
According to Blyth (1990 49), marketing is associated with identifying and satisfying the peoples social needs. In the escape of economically disadvantaged techniques that are based in a period when talents were many, hp will require to come up with a strategic approach to the human resource processes for retaining talents through innovation. The aspects of this approach to good competition strategies.
Many companies have detached themselves from their employees and have come up with a technique to automate their administration and conceptualize their delivery. This was surely important as it was seen in the manufacturing world during the last century. Today, it is the logical capital that brings about competitive advantage. The rules have taken a different perspective and the hp is now amplifying its delivery rather than standardizing it.
The hp company is now creating significant competitive advantage via its vital assets. The company is also creating wealth from ensuring that they remarkable returns on their employment investment. They use this technique attracting and retaining super talents that are dedicated to work for the benefit of the entire company.
Delivering value to the employees
We find ourselves in a very motivating time just as we see the ascend of the power of the knowledge employee as a revenue generating reserve, along comes a new machinery in the form of web 2.0 which facilitates us to change the way we administer to get the most excellent return from employees. The Gartner Group explains web 2.0 as a transformative power thats impelling companies across all industries in the direction of a new way of doing commerce characterised by harnessing collective astuteness, openness and network effects. We obtain value from our workers by engaging with them, conveying the value to them as acquaintance workers and motivating them to act in the best comfort of the company (Cobucci 1998 10).
The rationale of how the hp company obtains value on its workforce is gaining pace on the internet. The web is the most innovative, adaptable and an engaging element that has ever been experienced. The current role of employee administration is to amplify human effort acquired from individuals by capitalising on their passion and creativity and equipping with incentives, tools and working environment to integrate these efforts in a manner that permits individuals to obtain together what would be impossible if handled individually.
The hp brands are critically evaluated from the point of view of existing and potential employees. Sometimes, innovation skills can be an over-looked segment of the market mix. However, they contain large impacts on profit therefore they should be equally treated as advertising and promotion strategies. A higher or lower innovative strategy gradually changes both sales volume and gross margins. This has an indirect effect on other expenses because it reduces storage expenses, for instance, or bringing about chances for suppliers volume discounts.
Other factors also set the companys innovative strategy. Consider the five aspects that affect other marketing decisions the companys competitors, the companys suppliers, accessibility of substitute products and the companys customers. The audience is usually taken into account when the company positions how it wants to be perceived by its target. If the innovative strategy is not effective, the end users will lack trust in the quality of the products.
Some innovative strategies include the following
Competitive innovation
The hp company uses use the competitors marketing strategies as a benchmark for its innovative ideas. Price which is slightly above or below the competitors price enables the company to well position its strategies. The company makes sure that it is well informed about the competitors information about pricing through observation rather than inquiring from them. Or else it can be viewed as collusion, which is illegal in some countries (Golder 2000 87).
Cost plus mark-up is another strategy used by the company. Here the company does not look at the market, but it looks much at its own cost structure. It decides the profit it wants to obtain and adds it to the total costs to come up with the selling price. While applying this technique, the organization assures a particular per-unit-margin, it may also lead to prices that are disproportionate with the end user expectations, hence minimizing the profit.
Most service proficient focus their small business marketing on their know-how, their approach and the commodities and services they present. While proficiency is a key to doing the labour, most clients principal concern is getting trouble solved and having their spoken and unspoken requirements met. As a substitute of marketing your qualifications, your processes and line of attack, market your knowledge and the solutions you present.
The company uses every available resource, ranging from the internet research to its network to realize the typical drawbacks that are experienced by the customers. It uses every opportunity, contact or phone call to widen this understanding. In stead of paying much regards to the companys methodology and questions, the company uses questions for better understanding of its customers specific needs.
Marketing is usually associated with making connections usually between the unmet needs of the customer and the services offered. One of the most effective ways of impressing customers is to let them know that your organization understands the challenges they are facing. For a company to influence its credentials, it has to mention past customers while it cite examples of how it provided solutions to similar problems. How do you get peoples attention, arouse their awareness, trigger their craving, and motivate them to take action Answer that four-part question accurately and you have identified the secret to realizing tremendous sales and marketing achievement in your business or line of work. To make difficult matters, however, the potential answers are as numerous and multi-faceted as the increasing number of niche markets, products and services, and evolving marketing schemes and trends in our traditions (Mandel 2003 61).
While not all-comprehensive, the following list of marketing schemes marketing tools, as well as free marketing ideas can assist establish a marketing framework that can put your small business on a faster track to expansion. If you need more information on a particular business marketing topic, there are chances to purchase and download relevant digital books from the internet.
Gaining consumer confidence is also very important. The clients scepticism, indecisiveness, or confusion is among the top hindrances in the marketing world. It is up to the company to come up with an image of quality, experience good customer service as well as dependability to the prospective clients so as to win their confidence and overcome objectives of the sales. If the management has not clearly expressed its reasons and advantages of conducting business with them, then it will be hard to win their confidence.
The company also tries to penetrate awareness of its target audience through the amalgamated marketing strategy which in most times a well established internet marketing strategy. Effective competitiveness strategy is partly the outcome of exposing the target audience to the companys name and selling points in the ways that are very cost effective.
Conclusion
There are various marketing competitive strategies, but this paper addressed the pricing and innovative strategies which are applied by two companies that operate in the same market field. The paper looked at computer manufacturing companies of hp and Dell. Even though both strategies are effective in marketing competitiveness the innovative strategy proves to be more effective.
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