Wednesday, July 20, 2011

Marketing Project "Concierge Brazil": PRICING STRATEGY AND CHANNEL DISTRIBUTION

Price is an important factor in determining the profitability and long-term survival of every company, Lovelock (1996) has suggested that pricing is the only element of the marketing mix that produces revenues for the firm, while all the others are related to expenses. However, in the ever-changing electronic environment of the twenty-first century, price is one of the key strategic elements that is often overlooked by firms (Law, 2007). With the our new service “Concierge Brazil” , we have the opportunity to utilize price to build competitive advantage,  enhancing customer satisfaction and loyalty by meeting the demands of these specific segments which have the potential to improve the business profit position.
The cost to provide an exclusive service as a “concierge” will be higher, therefore it is necessary to use a pricing strategy that maintains good margins to get our objective to survive, not worrying about volume at this point. Therefore the skimming price strategy looks more suited for our objective instead of penetration price strategy which would provide lower prices, and lower unit profits to attract volume (Lacobucci, 2010). Actually, our product does not have competitors in the specific services which we will provide as we have previously stated, so again makes more sense to choose a skimming pricing approach to introduce our service to the marketplace.  Penetration pricing may be wise if the firm expects strong competition very soon after introduction. A low penetration price may discourage competitors from entering the market, once the product has secured a desired market share, its producers can then review business conditions and decide whether to gradually increase the price (McCarthy, 1990).
 “Concierge Brazil” is going to engage in skimming price strategy.The initial price for the product will be set quite high to support all the costs and reinvest in the business but only for a relatively short time and after introduction once the product's appeal broadens, the price can be reduced to appeal to a greater range of consumers. With the skimming strategy, even though sales will likely be modest, the profit margin will be larger. This pricing approach is most often used for high-prestige or otherwise unique products with significant cache. This is the type of demand that we are looking to cultivate for the services which we will offer. Penetration pricing can result in greater initial sales volume but we have chosen the skimming approach because of the type of service that we will provide will be exclusive and high quality therefore it is possible the  might have much slower acceptance, but we will probably have higher unit profits (Hilton, 1991).
For our service we could use a product line as a pricing tactic which offers a premium price for the high-price line travel or service and a medium-priced line for a lower tier service, with a lower-price for the lower service line. But we have chosen to work with value pricing as a tactic that offers our product at a fair and reasonable price which makes sense to the purchasing customer. As the name itself suggests, the price of the product/ service is set according to value perceived by the customer (Answer.com). We know that value is subjective but promoting a high level service for each one of the customers will provide a prestige associated with the image of such unique and exclusive service and that will add value for our target market.  This does not mean that we will offer differentiated pricing – where producers offer different prices to different customers on the basis of a number of criteria as cited in the Avlonitis and Indounas (2006), because a value price does not have criteria for the price, the price is just fair according to the costs and value of the product or service.
Our service would trade between two countries USA and Brazil. In international markets government regulations can affect prices indirectly through import duties and other import barriers that increase costs. In Brazil we have to be aware of legal constraints. The Brazilian government has installed tax regulations and monetary transfer policies, the objective of which is to defend consumers and/or preserve the local competition (BFTA).This will be very important to consider before formulating the final pricing structure.  In an international setting additional constraints have been formulated to limit tax evasion or keep cash, employment and economic activity within country boundaries. The international monetary policy of Brazil adds a significant challenge due to the fact that most of our customers will be in the USA and a large majority of our suppliers will be in Brazil, because of this there are significant payment issues. These issues can be overcome legally but there needs to be added infrastructure to navigate these issues and this adds cost to the business.
One of the issues within Brazil, especially in the north, is unethical employment practices in order to lower costs. “Concierge Brazil” will rigorously vet all suppliers to ensure that they fall in line with the United Nations Global Compact's ten principles with regards to human rights and labor practices. By doing this we will ensure that our prices are derived from an ethical price base.(UN Global Compact, 2011).

Marketing distribution channel analysis
We are going to use the e-commerce to access our customers and also to contact our suppliers, as you can see at figure1. In the supply chain management process, “Concierge Brazil” will contract the suppliers directly for hotels and restaurants, we are also the marketing provider and sell directly to the customer via either telesales and field sales and/or online via the Internet from our web site. The traditional workers also will be contracted directly by our company and they will provide the main services directly for the customers. In the direct distribution channel strategy, “Concierge Brazil” will be responsible for the transactional functions that involve contact with buyers, marketing communications, matching products to consumer’s needs, negotiating pricing, processing transactions and facilitating functions such as market research. 


Yelkur and Herbig describe the advances of technology and the growth of the internet as an electronic medium and this has led to the emergence of online travel distribution channels. Online distribution channels have gradually become a common way to make travel arrangements because of the lower costs and greater efficiency.  Concierge Brazil promotes exclusive, luxury and pleasure for people that can afford to pay and want an exuberant experience but they want the service with a practical and efficient delivery method.  Therefore the channel we have chosen to reach the consumer is via the internet and e-commerce. This will make it easier and faster for the client and for the company. Of course, we will keep the service available in more traditional mediums with some field sales and telesales in order to satisfy clients who prefer personal contact, but e-commerce will be the principal channel in part because we are new to the market and we have to avoid the expensive channels, therefore e-commerce seems to be the most reasonable and effective channel to reach our target market.
            Since we are new in the market, our main objective is survival  and keeping the value pricing structure in order to give enough profit to pay all costs and reinvest in the business. As a result we are going to build a process transaction with the supply channel also by e-commerce.
REFERENCES
Avlonitis, G.J., & Indounas,K.A. (2005). Pricing objectives and pricing methods in the  services sector. Journal of Services Marketing, 47–57.

Answer.com- wiki answer, http://wiki.answers.com/Q/What_is_Value_Pricing, May2011

BFTA “Brazilian Foreign Trade Association” – Legislação de Interesse.   http://www.aeb.org.br/LegisInter.htm
Gundlach, Gregory Predatory Practices in Competitive Interaction: Legal Limits and   Antitrust Considerations” T.. Journal of Public Policy & Marketing, 1990, Vol. 9 Issue          1, p129-153, 25p, 3 Charts
Lacobucci, Dawn., “Marketing Management” 2010.
Law,R., Chan,I., & Goh,C. (2007). Where to find the lowest hotel room rates on the internet?   The case of Hong Kong. International Journal of Contemporary Hospitality   Management, 19(6), 495-506.
Lovelock, C.H. (1996). Managing services, marketing, operations and human resources. New   Jersey  : Prentice-Hall International.
McCarthy, E. Jerome, and William D. Perreault, Jr. Basic Marketing: A Managerial        approach. Irwin, 1990.
UNGC, 2011. United Nations Global Compact. The UN Global Compact's ten principles”                Access: May 2011 www.unglobalcompact.org, and       http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html

Yelkur, R. & Herbig, P. (1997). Differential pricing for services. Journal of Marketing    Intelligence & Planning, 190–194






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