By: Nicole Hunter. Student Number: 212411883
Deakin email address: firstname.lastname@example.org. WordPress username: nicole3806
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Pricing is one of the 4P’s of marketing, part of the ‘manual’ for marketing, so is pricing purely about marketing or is pricing about business success?
So firstly, a quick overview of pricing – there are many theories and ‘hints and tips’ regarding pricing.
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Theories on pricing generally fall into one of three categories (Griffin, 2016):
- Cost Based
- Demand Based
- Competition Based
Along with the academic theories above, there is a multitude of step processes detailed on line, including as just two examples:
Five step process as detailed by Fletcher (2015) this includes:
- Determining business goals
- Conduct market pricing analysis
- Analyse the target market
- Profile competitors
- Create pricing plan and execute plan
A six step plan detailed by Hayes (2012)
- Know your margins
- Know the unique selling proposition
- Sell below market value to encourage customers to buy more
- Offer incentives
- Diversify in product offering
- Test the strategy
Despite the enormous amount of information regarding pricing strategy, the question remains, is pricing strategy purely about marketing, or does pricing strategy also need to involve business strategy and planning
By way of case study, let’s examine 2 organisations using pricing in their business plan and marketing – Coles and Woolworths Supermarkets.
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There is no denying Coles and Woolworths have a duopoly on the grocery market, reports suggest every week each man, woman and child in Australia spends $100 each at either Coles or Woolworth’s outlets (Chung, 2015). Whilst these 2 organisations are the biggest, most well known in this market place, some discount and smaller operators are pushing the big 2, to review their strategies in recent years (King, 2016).
Coles has seen 4% growth over consecutive quarters, compared to Woolworths who recorded negative store sales over three quarters (King, 2016). Why it is that Coles seems to have the upper hand against Woolworths, when on the face of it they are comparable? Is it purely about price?
Coles began to cut prices earlier and more aggressively (and market heavily – remember the ‘down down prices are down’ TV commercials) than Woolworths, Coles overall pricing fell between 0.8% and 1% whereas Woolworths pricing increased by 1.7% for the same period in 2014-2015 (Thieberger, 2015).
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Coles commenced discounting, home brand products and also popular brand name products –Kleenex, Sunrise and Colgate, by discounting home brand and brand name products Coles was marketing to two distinct customer bases. The price focused customer –always choosing the cheaper brand, and also brand name faithful, who are committed to common brands (Low, 2016). Whilst this initial cut price strategy may have gained customer attention, pricing is not the only area of customer satisfaction.
Coles was first to relaunch (in 2012) Fly By rewards programs for customers based on customer wants and desires, in comparison, Woolworths relaunched its Rewards program in 2015, research did suggest Woolworths relaunch was a positive move, however, the success of this program is still under review (Roper, 2015).
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Coles was also the first to initiate large investment in understanding their customers, price is not the only aspect driving customers to stores, research suggests location and convenience were (for some) more important than price (King, 2016).
As detailed in the Coles and Woolworths comparison, price has played a large role in securing significant increased sales revenue for Coles, in comparison to Woolworths, however, price along with being the first to appeal to other aspects of customer’s desires – rewards programs, convenience has resulted in a positive outcome for Coles. Therefore answering the original question – pricing is about marketing and business strategy resulting in overall business success.
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Chung, F, 2015, ‘Supermarket Monsters: How Coles and Woolworths suffocate us’, date retrieved 27 April 2016, www.news.com.au/finance/business/retail
Fletcher, P, 2015, ‘5 Easy Steps to Creating the Right Pricing Strategy’, date retrieved 28 April 2016, www.inc.com/patricai-fletcher
Griffin, D, 2016, ‘Pricing Strategy Theory’, retrieved 30 April 2016, www.smallbusiness.com/chron/pricing
Hayes, M, 2012, ‘6 Tips to Develop an Ecommerce Pricing Strategy’, date retrieved 27 April 2016, www.shopify.com
King, M, 2016, ‘Supermarket price war erupts: Coles fights back against Woolworths Limited,’ date retrieved 29 April 2016, www.fool.com.au/author
Low, C, 2016, ‘Coles, Woolworths, Aldi price war gets personal with cut-price tissues and toothpaste’, retrieved 29 April 2016, www.smh.com.au/business/retail
Roper, P, 2015, ‘Woolworths Relaunches radically redesigned rewards program’, retrieved 30 April 2016, www.marketingmag.com.au/news
Thieberger, V, 2015, ‘How Coles is crunching Woolworths in the price war’, date retrieved 29 April 2016, www.theaustralian.com.au/business/business-spectator