The Strategy and Tactics of Pricing - Case Study Example

The Strategy and Tactics of Pricing Major Facts/Problems In 1998, Steve Marsh noted a disturbing trend regarding the sales of the PSX-360 retail channel. There was a high dependence on some orders from the PSX’s major dealers. One of the dealers was in New York, and the other was in Los Angeles. By April 1998, the dealers had accounted for approximately 70 percent of the total sales of the company’s total PSX products. There was increasing complaints from other PSX dealers who were losing their sales to other retail dealers outside their territories. They linked the sales losses to huge discounts being offered by the major dealers in New York and LA. If the customer were in need of the PSX-360 unit, he would just visit the local dealers to acquire information on the product. He would then contact other dealers around the country to get the lowest quote and would have the unit shipped within 7-10 days. This implied that Pro-Audio PSX dealers would spend money and time educating the potential customers but would end up losing the sales to distant larger dealers. Customers buying the units from remote dealers would not receive after-sale support since the local dealer would not be part of the transaction. The strong image of the PSX-360 would be damaged by the retail discounting. There was a need to control the retail price of PSX-360 in order to eliminate discounting. The company also wants to increase sales by opening up new non-exclusive dealers and cancelling non-exclusivity agreements. Possible Solution A Steve Marsh should integrate the sales program with a comprehensive market strategy that aims at encouraging the buyers to buy the PSX-360 from local dealers and avoid transactions by distant dealers. This should be made possible by ensuring that the prices offered by all the dealers are equal through auditing process (Kourdi, 2009). The company needs to make a thorough auditing of all the dealers to ensure that none of them sells the product either above or below the recommended company price of $12, 000. Customers must be made to understand that they can only get good after-sale support services from the local dealers and not the distant dealers. The dealers may be connected to a digital sale receipt program that allows them to enter sales records and prices offered on the product. The same information should be reflected on the receipt given to the customer (Frasco, 1991). The company’s technical team must also follow up with the program to ensure that fabrication of data is made impossible. Possible Solution B Steve Marsh can adopt rebranding of the PSX-360 product. Rebranding of the commodity entails a number of aspects. As it can be revealed that the external dealers are the main cause of deteriorating sales to Steve’s organization. The audio industry in which Pro-Audio operates seems to be taking the structure of a monopolistic competition where there are a several number of sellers who are competing on same commodity or service. In this case, there are both first and second movers in quantity and price. All dealers have been identified to enjoy benefits of second movers (Gopalakrishnan, 2007). They have adopted high discounting techniques that have led to deteriorating sales in Pro-Audio. Consequently, the external dealers have led to deterioration of the PSX-360 image within the market. Product rebranding entails changing on the products attributes such as color, name, adding aspects of the PSX-360 functionality, logo, advertisement themes and strategy that its marketers use in selling the product (Gopalakrishnan, 2007). The aim of all these efforts is to change the reposition of the brand of this commodity to appear different from what external dealers are producing. Pros and cons of solution A Solution A would be beneficial to the company because it ensures a standardized price by all the dealers. It will also be helpful because the company will be able to track and evaluate the business deals of all the dealers around the country. Through auditing process the firm will be in a position to ensure that there are no agents that play around with the fixed pricing strategy adopted. This ensures that, there are no price negotiations allowed. The dealers will also be made aware that any breach of the contract will lead to its termination. This will ensure that the dealers conduct their business transactions with decorum (Nagle, Hogan, & Zale, 2014). Moreover, the comprehensive marketing strategy will emphasize on the quality, usage and prices that the commodity is rated. It ought to use quality tactic the main grounds of discouraging cheaper PSX-360 product. However, the program will incur more costs to the company. Steve Marsh will be required to hire more employees to perform the supervisory roles. This includes the internal auditing process that requires qualified auditors to facilitate the process. Inspecting the books of accounts of the agents ensures that prices are fixed, but it adds extra expenses of hiring new staff capable of that. The marketing strategy adopted to discourage the cheaper PSX-360 product, needs a comprehensive marketing research and plan, therefore, it may be time consuming. Lastly, this strategy may lead to the emerging of the black market that entails selling of the cheaper product that is of low quality with no receipts. This happens when consumers believe the same commodity of a lower quality can be bought at a cheaper price and serves them with same purpose. These aspects makes the alternative not the best solution to the Pro-Audio sales agent program. Pros and cons of solution B. Rebranding has a number of advantages to both the firm and the marketers. This has been identified to be the best technique that eliminates the negative connotations of the product’s previous brand, as well as moving the product up the music industry. Rebranding also paints a different picture and brand’s image in the market (Nagle, Hogan & Zale, 2014). This allows product differentiation and reduces competition from other outside-country dealers producing the same commodity. In addition, loyal consumers who purchase this product are in a position to stick to the new rebranded commodity as they enjoy exclusive attributes of the product. This aspect also discourages agents as they are not certain whether the rebranded product will sell. Lastly, it allows grabbing of more market share as marketers focus on new emerging markets with theb “new”product (Nagle, Hogan & Zale, 2014). Therefore, rebranding has all the aspects that Steve Marsh should consider as it can help doing away with the series of challenges affecting the firm’s sales program. However, rebranding has its own disadvantages that the management of Pro-Audio ought to consider. First, the process is expensive with its initial capital outlay. This is because changing of aspects of functionality needs to adopt a new production techniques and extra inputs. In addition, changing of the logo, color, image and a mew marketing themes and strategies requires the firm to add extra capital in order to realize a change. This translates to a new production technology that may be costly to the firm. Second, the rebranded product requires a comprehensive marketing strategy to convince customers of the necessity of buying the product. This may be challenging to the firm as it can lack qualified personnel to handle that task (Nagle, Hogan & Zale, 2014). Lastly, there is no guarantee that the new rebranded product will sell, therefore, it is a probabilistic task since businesses need to be risk takers. Choice of Rationale Solution B would be best suited for the company. Rebranding of the PSX-360 product helps the management of Pro-Audio eliminate a number of challenges that the firm is facing with the sales agent program. First, it will reduce any competition that the outside-country dealers are posing. This will limit the loyal buyers of the firm as they are guaranteed of new and a quality brand. The agents will be discouraged to trade the new product at a lower price due to fear of market loss where consumers perceive it to be of low quality. This makes the agents stick to the fixed price so as to convince consumers of the quality of the rebranded PSX-360. Through such an effort, the organization will realize both improved sales and revenues. Therefore, this is the breakthrough to the Pro-Audio’s sales program challenge. Implementation Rebranding occurs in different phases, however, market research, segmentation and product differentiation are the main steps. Marketers ought to carry out a comprehensive research on the trends of the sales in different geographical places. This allows an easy platform that allows market segmentation depending on the performance of the product in these markets. After marketers segment their market territory they now identify the attributes that their customers would value ranging from quality, ease of use and side effects, as well as, price itself. Through these aspects marketers adopt different attributes that suit their consumers unlike the existing similar product. The operations department designs the new brand accordingly to appear as a new product. Product name, color, functionality and packaging may be changed. Marketers now get involved in selling the “new”product. References Frasco, G. (1991). Exclusive dealing: A comprehensive case study. Lanham, Md: University Press of America. Gopalakrishnan, P. S. (2007). Rebranding: An introduction. Hyderabad, India: Icfai University Press. Kourdi, J. (2009). Business strategy: A guide to taking your business forward. London, Eng: Economist in association with Profile Books. Nagle, T. T., Hogan, J. E., & Zale, J. (2014). The strategy and tactics of pricing: A guide to growing more profitably. Harlow: Pearson Education Limited. Read More