Market penetration strategy for kiddy brand in cambodia (phnom penh city) from 2011 to 2015

The project has carried out the study with the marketing team in Cambodia and found out that the reason of decreasing in sale are price of product higher compare to the other cooking oil

TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES

MBAVB4

TRAN MINH THU

MARKET PENETRATION STRATEGY FOR "KIDDY"

BRAND IN CAMBODIA (PHNOM PENH CITY)

ACKNOWLEDGEMENT OF THE COMMITMENT

It is to confirm that the final project for the MBA program is my original work

The theory framework in the literature review is built up base on marketing management of Philip Kotler and teaching material of professor Jean Pierre Baeyens and Marianne Claes

Some information is base on internal data of company and internet source I am confident to submit this project to the professors of the MBA program

Tran Minh Thu

I acknowledge the great help from Mr Van Sok Heng – Business Development Manager and marketing team in Cambodia market for their help on collecting the data, doing market survey and providing information

Finally, I would like to express love to my parents and wife who have encouraged and motivated me during the program

With my best regards,

Ho Chi Minh City, December 2011

Tran Minh Thu

TUTOR’S COMMENT

Project: Market Penetration Strategy For "Kiddy" Brand In Cambodia (Phnom Penh City) From 2011 to 2015

This project satisfies the requirement for a business project at the Master's level It

is recommended that Tran Minh Thu presents his business project to the

committee

Ho Chi Minh City, December 2011

Tutor’s Signature: Dr Trinh Thuy Anh

ABSTRACT

“Kiddy” oil brand was distributed in Cambodia from January 2011 but the sale is not good as expectation and on the decreasing trend The project has carried out the study with the marketing team in Cambodia and found out that the reason of decreasing in sale are price of product higher compare to the other cooking oil, product knowledge of sale force is low and product is too new for Cambodia market

The market survey in Phnom Penh City showed out that the consumers have a demand for using cooking for kids but currently in the market don’t have any specific product which designed for kids so mainly people use the olive oil which recommended by the doctors, nutritionist for their kids

Through analyzing the market survey data and secondary data from internal and external source, the project have set out the market penetration strategy for

“Kiddy” oil brand in Cambodia market from year 2011 to 2015

The market penetration strategies for “kiddy” oil brand are the combination of: + Branding and promotion strategy: which build up the brand awareness of product and encourage consumers to buy through promotion campaign

+ Pricing and distribution strateggies: which use the market penetration pricing to attract new customers and encourage the existing customers who using Olive Oil

to switch to “Kiddy” oil Beside that, instead of distribute through traditional channel (wet market), the new channels like supermarket, Health Care/Clinic center and baby shop are also explored

TABLE OF CONTENTS

ABBREVIATIONS ··· i

LIST OF FIGURES··· ii

CHAPTER I: INTRODUCTION   1 

1.1 COMPANY INTRODUCTION   2 

1.2 PROBLEM IDENTIFICATION   2 

1.3 RESEARCH OBJECTIVES   3 

1.4 RESEARCH METHOD   4 

1.4.1 At Desk research (Secondary Data)   4 

1.4.2 Quantitative Research (Primary Data)   4 

1.5 SCOPE OF RESEARCH   5 

1.6 THESIS STRUCTURE   5 

CHAPTER II: LITERATURE REVIEW   7 

2.1 ANSOFF GROWTH STRATEGY MATRIXES   8 

2.2 UNDERSTANDING CONSUMER BEHAVIOUS   10 

2.3 THE BUYING DECISION-PROCESS: THE FIVE – STAGE MODEL   13 

2.4 THE MARKETING MIX STRATEGY   16 

2.4.1 Product   17 

2.4.2 Price   19 

2.4.3 Place   24 

2.4.4 Promotion   28 

2.5 ADVERSTING   29 

CHAPTER III: CURRENT SALE STATUS OF “KIDDY” OIL BRAND AT CAMBODIA   33 

3.1 CAMBODIA AT A GLANCE   34 

3.2 CAMBODIA COOKING OIL MARKET OVERVIEW   35 

3.3 PRODUCT OVERVIEW   38 

3.4 CURRENT SALE STATUS OF “KIDDY” OIL BRAND AT CAMBODIA   39 

3.5 KIDDY OIL’S SWOT ANALYSIS   41 

3.6 ANALYZING THE MARKET SURVEY’S RESULT   42 

CHAPTER VI: MARKET PENETRATION STRATEGY   49 

4.1 BRADING AND PROMOTION STRATEGY   50 

4.2 PRICING AND DISTRIBUTION STRATEGGIES   54 

CHAPTER V: CONCLUSION   56 

REFERENCES   59 

APPENDIX   60   

ABBREVIATION

4 P’S Product, Price, Place and Promotion

CALOFIC Cai Lan Oils & Fats Industries Company Limited

DHA Docosahexaenoic Acid

EPA Eicosapentaenoic Acid

FDI Foreign Direct Investment

GDP Gross Domestic Product

RBD PALM OLEIN Refined, Bleached and Deodorized Palm Olein

SWOT Strengths, Weaknesses, Opportunities and Threats USD United States Dollars

VOCARIMEX Vietnam Vegetable Oils Industry Corporation

WTO World Trade Organization

LIST OF FIGURES

Figure 2.1: Ansoff Growth Strategy Matrixes ··· 8

Figure 2.2: Maslow's hierarchy of needs ··· 12

Figure 2.3: The Five – Stage Model ··· 13

Figure 2.4: The Marketing Mix Strategy ··· 16

Figure 2.5: The product life cycle ··· 17

Figure 2.6: Internal/ External Factors Affecting Pricing Decisions ··· 19

Figure 2.7: Distribution Channel Levels ··· 25

Figure 2.8: The five M's of Advertising ··· 30

Figure 3.1: market share by sources ··· 35

Figure 3.2: Market share by Packaging size ··· 36

Figure 3.3: Brands share total market ··· 37

Figure 3.4: type of oil in the Cambodia market ··· 38

Figure 3.5: Kiddy Oil sale ··· 39

Figure 3.6 Education back groud of interviewee ··· 42

Figure 3.7 Estimate income of interviewee ··· 43

Figure 3.8 person involve in purchase nutritious food for kids ··· 43

Figure 3.9 nutritious food supplies to kids ··· 44

Figure 3.10 where consumers get consultant/ reference before deciding to buy ··· 45

Figure 3.11 advices from the doctor and nutritionist on using oil for kids ··· 45

Figure 3.12 Kinds of oil which advised from the doctor and nutritionist for kids ··· 46

Figure 3.13 Nutritions which good for kids as per Cambodia consumers ··· 46

Figure 3.14 where the consumers purchased nutritious food for kids ··· 47

Figure 3.15 Factors which affected to buying decision of consumers ··· 48

Figure 4.11: Television viewing frequency ··· 53 Figure 4.12: Channels watched most often ··· 54 Figure 4.13: Usual viewing hours ··· 54

CHAPTER I: INTRODUCTION

1.1 COMPANY INTRODUCTION

Cai Lan Oils and Fats Industries Company (CALOFIC) is a joint venture between Vietnam Vegetable Oils Industry Corporation (VOCARIMEX) which belong to Ministry Of Industry and Trade and Wilmar Group, Singapore

Founded in 1996 with an initial investment of USD 22 million, now increasing to USD 75.8 million, Cai Lan Oils and Fats Industries Company (CALOFIC) is now one of the leading joint venture companies in Vietnam CALOFIC set foundation and has been the backbone of manufacturing and processing vegetable oils in Vietnam Currently, CALOFIC has two factories in Quang Ninh & Ho Chi Minh City, two branch offices in Hanoi and Ho Chi Minh City with over 1,000 employees nationwide

Since its establishment, Cai Lan Oils and Fats Industries Company (CALOFIC) has incessantly improved product quality, applied new technologies and developed integrated distribution system, thereby affirming its position in the market CALOFIC has become a popular trademark in Vietnam with its well-known vegetable cooking oil brands including: NEPTUNE 1:1:1 - TEN FOR HEALTH - TEN FOR QUALITY, SIMPLY - FOR A HEALTHY HEART, MEIZAN - DELICIOUS FOOD – GOOD HEALTH, KIDDY - NUTRITION FOR PREDOMINANT SMART , and CAI LAN - CAI LAN COMES IN KITCHEN, LUCK COMES IN HOME

Besides, CALOFIC also possesses various kinds of cooking oils packed in cans of different sizes; shortening packed in carton boxes; and also margarine for food and bakery

Cambodia is a quite potential market for Vietnam Company, at the moment there are some Vietnam companies have started to investment in Cambodia like: Viettel, FPT, Sacombank …follow the trend, Cai Lan Oils & Fat Co Ltd (calofic) have started to develop the cooking oil business in Cambodia with various brand name like Simply, Neptune for high end segment, Cai Lan for low end and Kiddy which was designed for children from 6 months to 8 years old

Calofic started selling “kiddy” oil brand from Jan 2011and can consider is the first company selling the cooking oil which designed for Kids in the combodia market The sale quantities in the first some months are quite good but then it decreased

So this project has to find out what are the causes of the decrease in sale and what are the strategies need to performe in order “kiddy” oil brand can penetrate deeply into Cambodia market

1.3 RESEARCH OBJECTIVES

The main purpose of this research is to find out:

a) What are the problems which made the sale decrease?

b) Whether there is a demand for using cooking oil for kids?

c) What are factors affected to the buying of consumer and from then build up

a market penetration strategy for “kiddy” oil brand in Cambodia from year

2011 to 2015

1.4 RESEARCH METHOD

This project will be used the following research method:

1.4.1 At Desk research (Secondary Data)

At desk research (or so call “Secondary research”) is a method that reuses existing data that was collected for another project, often by another researcher This is a relatively inexpensive form of data collection since the costs associated with administering surveys or other instruments have already been conducted It can also be conducted more quickly and with less manpower than primary data collection

Sources of secondary data can come from within the firm itself – this is known as internal secondary data External secondary data, on the other hand, is data that has been published by other organisations

The project will be used the secondary data from internal and external source like sale number, market stituation…to statistic and analysis

1.4.2 Quantitative Research (Primary Data)

As teaching material from Professor Marianne Claes: Quantitative research is a research with a sample size which is sufficiently representative of the population being researched, to draw conclusions and analysis with a limited range of variation for the data provided (tables exist giving the relevance interval for data, depending on the size of the sample)

Interviews are done either face to face, or by telephone Another way to interview target groups nowadays is via the internet, this provides a fast and cheaper interviewing method but with the bias of lack of control by the research specialist (this method replaces the questionnaires that were in the past sent by normal post)

For this project, it will be used the questionnaires to collect the data from the consumers

A) Purpose Of Questionnaire:

+ Identify whether consumers in Cambodia use the nutritious food for their kids which including oil, what kind of nutrition is important to kids

+ Where they purchase nutritious food for their kids

+ What are the factors which affecting to the buying decision of buyer for nutrition product for kids?

B) Place Of Research: Phnom Pend, Cambodia

C) Sample Size: 300 people

1.5 SCOPE OF RESEARCH

This research focuses on final consumers in Phnom Penh, Cambodia which families have kids from 6 months to 8 year olds Through the result from the market survey, the project will give out the strategies from year 2011 to 2015 for

“kiddy” brand in order to help “kiddy” brand can penetrate deeply into Cambodia market

CHAPTER 2: LITERATURE REVIEW

This chapter will covers literature referring to this study Theory about Ansoff Growth Strategy Matrix, consumer behavious and buying decision-process, The marketing mix strategy (4 Ps), SWOT, Branding

CHAPTER 3: CURRENT SALE STATUS OF “KIDDY” OIL BRAND

In this chapter we will have a glance at Cambodia country, cooking oil market introduction and current sale status of “Kiddy” Oil brand in Cambodia Beside that this chapter also has the analysis of the market survey and SWOT analysis for kiddy oil

CHAPTER 4: MARKET PENETRATION STRATEGY

This chapter will mention about the strategies on branding, pricing and distribution channel which help “kiddy” brand to increase the sale volume

CHAPTER 5: CONCLUSION

In this final chapter, there will be some conclusions on the project

CHAPTER II:

LITERATURE REVIEW

1 ANSOFF GROWTH STRATEGY MATRIXES

2 UNDERSTANDING CONSUMER BEHAVIOUS

3 THE BUYING DECISION-PROCESS: THE FIVE – STAGE MODEL

4 THE MARKETING MIX STRATEGY

5 ADVERSTING

2.1 ANSOFF GROWTH STRATEGY MATRIXES

Ansoff presented a matrix that focused on the firm's present and potential products and markets By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations Ansoff's matrix is shown below:

Figure 2.1: Ansoff Growth Strategy Matrixes (source: Internet)

Market Development

The firm seeks growth by targeting its existing products to new market segments Market development options include the pursuit of additional market segments or geographical regions The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy

Diversification

The firm grows by diversifying into new businesses by developing new products for new markets Diversification is the most risky of the four growth strategies since it requires both product and market development However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return Other advantages of diversification include the potential to gain

a foothold in an attractive industry and the reduction of overall business portfolio risk

2.2 UNDERSTANDING CONSUMER BEHAVIOUS

Consumers are the center and key of all marketing decision, without consumers business cannot survive So understand consumer behavious and motivation is important, it help the marketer know what influences consumers behavious, what will satisfy consumers need, what making consumers decide to buy this product not the other product

As Philip Kotler mentioned in “Marketing management – 12th edition”, a consumer‘s buying behavious is influenced by culture, social, and persional factors

in which the social factors exert the broadest and deepest influence

A Cultural Factors

Culture, subculture, and social class are particularly important influences on consumer buying behavious Culture is the fundamental determinant of a person’s wants and behavious Just imagine the people who living in city and country side, when they purchase the product their behavious will be different due to it are affected by the place they are living or growing up

Each culture consists of smaller subcultures that provide more specific identification and socialization for their members Subculture includes nationalities, religions, racial groups and geographic region When the subcultures grow large and affluent enough, campanies often design specialized marketing program s to serve them Multicultural marketing grew out of carerful marketing research, which revealed that different ethnic and demographic niches did not always repond favorably to mass marketing adverstising Like in Vietnam, day by day the islamic group consumers is growing and become more important so that more and more manufacturers now are applying the Halal certificate and using it to do marketing progam to attached the consumers

Social Class is relatively homogeneous and enduring divisions in a society, which are hierarchically ordered and those member share similar values, interests and behavious In “Marketing management – 12th editions” Philip Kotler had classified

the social class as following: (1) lower lowers, (2) upper slowers, (3) working class, (4) middle class, (5) upper middles, (6) lower uppers and (7) upper uppers

People in the different classes will tend to behave differently; they differ in dress, speech patterns, buying a product and the many other characteristics for instances, if the target customers of the store are for the upper class people, the store should be decorated luxuriously, selling the unique cargo with a high price compare to the store which target customers is lower class

B Social Factors

In addition to the cultural factors, the consumers behavious also affected by Social factors as reference groups, family, social roles and statuses

A behaviuos of consumers is strongly influenced by many reference groups such

as membership group which the member of the group is influenced directly or indirectly by the rest of members in the group Primary group such as family members, friends, neighbours, colleagues, secondary group such as religious, professional, trade union which tend to be more formal and require less continuous interaction Aspirational group are those a person hope to join…

People are influenced by their reference groups in at least three ways Reference groups expose an individual to new behaviors and lifetyles, and influence attitudes and self – concept, they create pressures for conformity that may affect actual product and brand choices People are also influenced by group to which they do not belong to

The members of the family of buyer also can create a big impact on buying behaviuos of the buyer; we can distinguish between two families in the buyer’s life The family of orientation consists of father, monther and son; from the parents the son acquires an orientation toward religion, politics, and economics, self-worth and love Even if the son not have much interact with his parents, their influence on behavious of the son can be significant A more direct influence on everyday buying behavior is call the family of procreation

C Personal Factors

A buyer’s decisions are also influenced by personal characteristics These include the buyer’s age and stage in the life cycle, occupation and ecomonic circumstances, persionality, self-concept and values Because many of these characteristics have a very direct impact on consumer behavious, it is important for marketer to follow them closely

People buy different goods and services over the life- time, for instances, the kids will eat special food for children, when grow up they can eat almost foods but when becoming old they will need special food for seniors Marketers should also consider critical life events or transitions like: marriage, childbirth, illness, relocation, divorce, career change and widowhood cause it may have a new need arising

D Psychological Factors

Maslow's hierarchy of needs is a well – known theory which explains why people are driven by particular needs and wants Maslow’s Hierarchy of Needs has often been represented in a hierarchial pyramid with five levels, the lower level needs need to be satisfied before higher-order needs can influence behavior The levels are as follows:

Figure 2.2: Maslow's hierarchy of needs (source: Internet)

At the basic need level such as food, water, and sleep… are the most important thing people looking for Later to higher of the ladder like to be safe, love, belongingness, to be recognized (or esteem) and highest level is self-actualization

In the other words, people try to satisfy the most important need first before moving to the other higher need Maslow’s theory will help the marketer understand how various products fit into the plans, goal, and live of consumers

2.3 THE BUYING DECISION-PROCESS: THE FIVE – STAGE MODEL

Philip Kotler explained that “these basic psychological processes play an important role in understanding how consumers actually make their buying decision” The consumers pass through five stages: problem recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior Clearly, the buying process starts long before the actual purchase and has consequences long afterward However, consumers do not always pass through all five stages in buying a product or service They may skip or reverse some stages The Five - stage Model as following:

Figure 2.3: The Five – Stage Model (source: Internet)

Problem Recognition

The buying process starts when the buyer recognizes a problem or need, example

I am hungry, we need a new sofa, I have a headache The need also can be triggered by internal or external stimuli With an internal stimulus, one of the person’s normal needs rises to a threshold level and becomes a drive; or a need can be aroused by an external stimulus

Marketers need to identify the circumstances that trigger a particular need by gathering information from a number of consumers They can then develop marketing strategies that trigger consumers’ interest This is particularly important with discretionary purchases such as luxury goods vacation packages and entertainment options Consumer’s motivation may need to be increased so that a potential purchase is even given serious consideration

Information Search

An aroused consumer will be inclined to search for more information We can distinguish between two levels of arousal The milder search state is called heightened attention; at this level a person simply becomes more receptive to information about a product At the next level, the person may enter an active information search; looking for reading material, phoning friends, going online, and visiting stores to learn about the product

The information sources which consumers can obtain are falling into four groups: + Personal: family, friend, neighbors, acquaintances

+ Commercial: advertising, website, sales-person, dealers, packaging, displays + Public: mass media, consumer-rating organizations

+ Experiential: handling, examining, using the product

The relative amount and influence of these sources vary with the product category and the buyer’s charateristics In general the consumer receives the most information about the product from commercial source that is marketer –

dominated sources However, the most effective information often comes from personal sources or public sources that are independent authorities

Evaluation of Alternatives

The stage of the buyer decision process in which the consumer uses information

to evaluate alternative brands in the choice set

Consumers evaluate their purchase options based on product attributes, such as technical specifications, through subjective factors, such as brands, and through personal experience, such as sampling or testing products Consumer and company reviews can influence a consumer's product evaluation

A consumer’s decision to change, postpone or avoid a purchase decision is influenced heavily by percieved risk Many purchases involve some risk taking The amount of perceived risk varies with the amount of money at stake, the amount of purchase uncertainty and the amount of consumer self-confidence A Consumer takes certain actions to reduce risk, such as avoiding purchase decisions, gathering more information and looking for national brand names and products with warranties Understand the factors that provoke feelings of risk in consumers, providing information can be a right way to reduce the perceived risk

at consumers

Post Purchase Behavior

After making a purchase, a consumer mentally ranks her/his purchase satisfaction She will evaluate if she liked the store, if she enjoys the product and the quality of the product This evaluation determines whether the customer will purchase the product or brand again and whether it would be from the same store Customers who are happy with their purchases and feel they received a quality product at a good price, will become repeat customers and will tell others about their experience

2.4 THE MARKETING MIX STRATEGY

Defined by Philip Kotler: “marketing mix as the set of controllable tactical marketing tool that the firm blends to produce the response it wants in the target market” The marketing mix consists of everything the firm can do to influence the demand for it product The many possibilities gather into four groups of variables known as “Four Ps”: Product, Price, Place and Promotion

Figure 2.4: The Marketing Mix Strategy (source: Internet)

The Product Life Cycle

A product like a people, it also has it own life cycle like: Introduction Stage, Growth Stage, Maturity Stage, and Decline Stage By understanding the product life cycle, the marketer will know how the life cycle impact on the marketing strategy and how to set a strategy for the product for each stage of product life cycle

+ Pricing may be low penetration pricing to build market share rapidly, or high skim pricing to recover development costs

+ Distribution is selective until consumers show acceptance of the product

+ Promotion is aimed at innovators and early adopters Marketing communications seeks to build product awareness and to educate potential consumers about the product

B) Growth Stage

In the growth stage, the firm seeks to build brand preference and increase market share Product quality is maintained and additional features and support services may be added

Pricing is maintained as the firm enjoys increasing demand with little competition Distribution channels are added as demand increases and customers accept the product

Promotion is aimed at a broader audience

C) Maturity Stage

At maturity, the strong growth in sales diminishes Competition may appear with similar products The primary objective at this point is to defend market share while maximizing profit Product features may be enhanced to differentiate the product from that of competitors

Pricing may be lower because of the new competition

Distribution becomes more intensive and incentives may be offered to encourage preference over competing products Promotion emphasizes product differentiation

D) Decline Stage

As sales decline, the firm has several options:

+ Maintain the product, rejuvenating product by adding new features and finding new uses

+ Harvest the product, reduce costs and continue to offer it

+ Discontinue the product, liquidating remaining inventory or selling it to another firm that is willing to continue the product

The marketing mix decisions in the decline phase will depend on the selected strategy For example, the product may be changed if it is being rejuvenated, or left unchanged if it is being harvested or liquidated The price may be maintained if the product is harvested, or reduced drastically if liquidated

2.4.2 Price

Price is one of the elements of “Four Ps” Pricing a product is an important part of marketing but also a difficult part because the various products have demand and cost interrelationshipand subject to different degrees of competition

A company's pricing decisions are affected both by internal company factors and

by external environmental factors (below picture)

Figure 2.6: Internal/ External Factors Affecting Pricing Decisions

The market and demand Competition

Other environmental elements

Price Decision

Internal Factors Affecting Pricing Decisions

Internal factors affecting pricing include the company's marketing objectives, marketing-mix strategy, costs and organization

A) Marketing Objectives

Before setting price, the company must decide on its strategy for the product, If the company has selected its target market and positioning carefully, then its marketing-mix strategy, including price, will be fairly straightforward

B) Marketing-Mix Strategy

Price is only one of the marketing-mix tools that a company uses to achieve its marketing objectives Price decisions must be co-ordinated with product design, distribution and promotion decisions to form a consistent and effective marketing programme

C) Costs

Costs set the floor for the price that the company can charge for its product The company wants to charge a price that both covers all its costs for producing, distributing and selling the product, and delivers a fair rate of return for its effort and risk A company's costs may be an important element in its pricing strategy Many companies work to become the 'low-cost producers' in their industries Companies with lower costs can set lower prices that result in greater sales and profits

D) Organizational Considerations

Management must decide who within the organization should set prices Companies handle pricing in a variety of ways In small companies, prices are often set by top management rather than by the marketing or sales departments

In large companies, pricing is typically handled by divisional or product line managers

External Factors Affecting Pricing Decisions

External factors that affect pricing decisions include the nature of the market and demand, competition and other environmental elements

A) The Market and Demand

Whereas costs set the lower limit of prices, the market and demand set the upper limit Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it Thus, before setting prices, the marketer must understand the relationship between price and demand for its product

B) Competitors' Costs, Prices and Offers

Another external factor affecting the company's pricing decisions is competitors' costs and prices, and possible competitor reactions to the company's own pricing moves The company's pricing strategy may affect the nature of the competition it faces If company follows a highprice, high-margin strategy, it may attract competition A low-price, low-margin strategy, however, may stop competitors or drive them out of the market

Pricing strategy

As Philip Kotler mentioned in “principle of marketing”: “A company does not set a single price, but rather a pricing structure that covers different items in its line This pricing structure changes over time as products move through their life cycles” The company adjusts product prices to reflect changes in costs and demand, and

to account for variations in buyers and situations As the competitive environment changes, the company considers when to initiate price changes and when to respond to them

Below are some pricing strategies:

A) New-Product Pricing Strategies: A company that plans to develop an imitative new product faces a positioning problem It must decide where to position the

product versus competing products in terms of quality and price Companies can use below price positioning strategies of Philip Kotler in pricing for new product

• Premium pricing strategy: producing a high-quality product and charging the highest price

• Economy pricing strategy: producing a lower-quality product, but charging a low price

• Overcharging strategy: the company overprices the product in relation to its quality But in the long run, customers are likely to feel 'taken' and they will stop buying the product and will complain to others about it so this strategy should be avoided

• Market-Skimming Pricing: Usually the company will set a high price for their new product or technology in the market to maximun their profit in the segment which people willing to pay for a high price, so that the volume cannot be more but the company made more profit due to high selling price

• Market-Penetration Pricing: Instead of setting a high initial price to “skim” the profit for the new product, the company can use the market-penetration pricing which set a low initial price in order to penetrate the market quickly and deeply, to attract a large number of buyers quickly and win a large market share which will help the company archive the economic of scale and lead to reducing cost

B) Product-Mix Pricing Strategies: The strategy which the firm looks for a set of prices that maximizes the profits on the total product mix But this pricing is difficult because the various products have related demand and costs, and face different degrees of competition

• Product line pricing: Establishing a single price for all products in a product line, such as having a price of USD2/bottle for the high-end cooking oil, USD1.5/bottle for the medium-priced cooking oil, and USD1/bottle for the lower-end cooking oil

• Optional-Product Pricing: The pricing of optional or accessory products along with a main product

• Captive-Product Pricing: Setting a price for products that must be used along with a main product, such as blades for a razor and film for a camera

• By product pricing: Setting a price for by-products in order to make the main product’s price more competitive

• Product-Bundle Pricing: Combining several products and offering the bundle at a reduced price

C) Price-Adjustment Strategies: Companies usually adjust their basic prices to account for various customers or in the changing situations There are following strategies:

+ Discount and Allowance Pricing:

• Cash discount: a price reduction to buyers who pay their bills promptly

• Quantity discount: a price reduction to buyers who buy large volumes

• Functional discount: a price reduction offered by the seller to trade channel members who perform certain functions such as selling, storing, and record keeping

• Seasonal discount: a price reduction to buyers who purchase merchandise

or services out of season

• Allowance: is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way + Segmented Pricing: Companies will often adjust their basic prices to allow for differences in customers, products and locations In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs Segmented pricing takes several forms:

• Customer-segment pricing: different customers pay different prices for the same product or service For instance: ticket charges for entering the Zoo, usually it charges lower for the kids compare to the adult

• Product-form pricing: different versions of the product are priced differently, but not according to differences in their costs

• Location pricing: different locations are priced differently, even though the cost of offering each location is the same

• Time pricing: Prices vary by the season, the month, the day and even the hour

• Psychological Pricing: A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product

2.4.3 Place (or so call Distribution Channel)

Usually the product not selling directly to end consumers, most producers use third parties or intermediaries to bring their products to the end consumers which call the distribution channel

Decision about the marketing channel systems are among the most critical management issue If the wrong decision of marketing channel systems is made, the cargo may not be able to reach the consumers The channel chosen affect all other marketing decisions

Philip Kotler defined the main function of a distribution channel is to provide a link between production and consumption Organisations that form any particular distribution channel perform many key functions:

• Information: Gathering and distributing market research and intelligence - important for marketing planning

• Promotion: Developing and spreading communications about offers

• Contact: Finding and communicating with prospective buyers

• Matching: Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging

• Negotiation: Reaching agreement on price and other terms of the offer

• Physical distribution: Transporting and storing goods

• Financing: Acquiring and using funds to cover the costs of the distribution channel

• Risk taking: Assuming some commercial risks by operating the channel

Distribution Channel Levels

The company can distribute their product by direct and indirect channel, there are fours channel level and as following:

Figure 2.7: Distribution Channel Levels

In the figure above, Channel 1 is called a "direct-marketing" channel, since it has

no intermediary levels In this case the manufacturer sells directly to customers

An example of a direct marketing channel would be a factory outlet store

The remaining channels are "indirect-marketing channels" Channel 2 contains one intermediary In consumer markets, this is typically a retailer Channel 3 contains two intermediary levels - a wholesaler and a retailer A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into the bulk deliveries to supply retailers with smaller quantities For small retailers with limited order quantities, the use of wholesalers makes economic sense

Channel Management Decisions

After a company has chosen a channel alternative, individual intermediaries must

be selected, trained, motivated, and evaluated Channel arrangements must be modified over time

A) Selecting Channel Members

Companies need to select their channel members carefully To facilitate channel member selection, producers should determine what characteristics distinguish the better intermediaries They should evaluate the number of years in business, other lines carried, growth and profit record, financial strength, cooperativeness, and service reputation If the intermediaries are sales agents, producers should evaluate the number and character of other lines carried and the size and quality

of the sales force If the intermediaries are department stores that want exclusive distribution, the producer should evaluate locations, future growth potential

B) Training Channel Members

Companies need to plan and implement careful training programs for their intermediaries in order to increase the product knowledge and quality of the channel

C) Motivating Channel Members

Channel members must be continuously motivated to do their best The companies stimulate channel members to top performance starts with understanding their needs and wants The company should provide training

programs, market research programs, and other capability-building programs to improve intermediaries' performance

Most producers see gaining intermediary co-operation as the primary problem and

as Philip kotler in the marketing managnemt, they can on the following types of power to elicit cooperation:

• Coercive power: a manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate This power can

be effective, but its exercise produces resentment and can generate conflict and lead the intermediaries to organize countervailing power

• Reward power: The manufacturer offers intermediaries an extra benefit for performing specific acts or functions Reward power typically produces better results than coercive power, but can be overrated The intermediaries may come to expect a reward every time the manufacturer wants a certain behavior to occur

• Legitimate power: The manufacturer requests a behavior that is warranted under the contract As long as the intermediaries view the manufacturer as

a legitimate leader, legitimate power works

• Expert power: The manufacturer has special knowledge that the intermediaries value Once the expertise is passed on to the intermediaries, however, this power weakens The manufacturer must continue to develop new expertise so that the intermediaries will want to continue cooperating

• Referent power: The manufacturer is so highly respected that intermediaries are proud to be associated with it

D) Evaluating Channel Members

The producer must regularly monitor the channel's performance against agreed targets such as sales quotas, average inventory levels, customer delivery time, and treatment of damaged and lost goods, co-operation in company promotion and training programmes, and services to the customer The company should