The Strategies of Zara and Coca-Cola Corporation - Essay Example

‘Channel pricing’ is the practice of charging separate prices for an identical product, as determined by the channel through which it is sold. ‘Regional pricing’ refers to the practice of pricing items differently in different regions, sometimes to better match local economies. Often cars are priced by regional pricing, and a person may pay more or less for a vehicle depending on the town, or even the country, in which they live.

Anyone who has watched a home shopping network knows what ‘ time-based differentiation’ is. It is the practice of charging a different price based on how quickly a consumer gets an item or the length it takes to provide a service. Sometimes, if you “order now!” you’ll get a discount, or you may pay more if you ask for overnight shipping.
When a company can't use other sorts of price differentiation, ‘product versioning’ is a tactic that is sometimes used. The company creates slightly different ‘versions’ of the same product to adjust the price by region or price sensitivity, justifying it by saying that it is a different version. The Apple corporation is known to do this sometimes with their iPod line. If the customer is unfamiliar with the features provided by the device, the company can simply repackage it into a slightly different package, and call it a new version, justifying any price changes they wish.

Oftentimes, a company will offer coupons or rebates as a customer incentive. These are often beneficial financially to the company for several reasons. If a customer has a coupon for a particular item, they may go to a store they do not usually frequent to redeem it. This gets people in the door who may purchase additional items than the one they intended to come for. Also, in the case of rebates, since the customer must send them in after purchase and some lose them or forget, this can sometimes lead to greater company profits.

SECTION 2

Through the use of dynamic pricing, demand can be shifted from one period of time in a quarter or sales period to another. As available capacity increases, a shift is made in the product to another quarter by changing the price. Through this practice, the company can attempt to predict the overall demand for its product. If sales are uncertain, a company may want to increase prices so that product manufacturing is controlled. This way, they do not create more supply than demand. Demand can change by season, and should be considered a variable.

SECTION 3

The strategy of the Coca-Cola Corporation was successful because it allowed the company to increase profit margins on days with higher temperatures. Consumers may have felt differently if they had realized that Coke was capitalizing on their thirst, and the heat, a factor that they the customer could not control. Some may have felt that they were being taken advantage of in this way. This example of price gouging was effective because the consumer at large accepted the situation and was unaware of the practice, they just knew they wanted their sodas.

SECTION 4

In the case of the clothing company, Zara, they utilize a time-sensitive outsourcing strategy. They outsource lines of clothing that are still selling but are no longer current. This allows them to achieve the least expensive means of production possible. They manufacture in-house the current clothing line. Even at a higher expense, this is possible because most people in the fashion world accept that they will pay more for a newer line item than an older one. In addition, producing new lines in-house allows them to ensure that they meet demand. Since all clothing is produced locally, there is no chance of a shipping delay, a malfunction at another factory, or other such things that are beyond their control. They can also personally monitor the quality of their newer, more expensive items, to ensure customer satisfaction.

The difficulty that this can create is keeping up with the actual product demand. If you are the only one producing the good in question, you are the only one to blame if it is unavailable. Garment worker strikes or federal raising of the minimum wage are all factors that could impact the final consumer price of a Zara garment.

The best way that Zara could improve its current production model, is, instead of outsourcing the work to independent international factories, it might do better to instead outright purchase some of these foreign production sites and institute Zara company management as an oversight. This would allow them to access an inexpensive worker pool while still retaining greater control over deadlines and quality. If they were successful, they may even be able to save money in ‘in-season’. If foreign factories can prove their reliability in the off-season, a select few may be chosen to attempt to meet in-season demand. If this is successful, it could save a lot of money for the company in the future. Read More