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Examine the role of pricing in three local companies: McDonald's, Starbuck's, Tesco.

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Introduction

Introduction This paper will examine the role of pricing in three local companies: * McDonald's * Starbuck's * Tesco The following introductory information provides an understanding of the role pricing plays in business, the different types of pricing policies and why they are implemented. Following the introduction, each company's pricing policies will be examined individually. Pricing plays a critical role in any marketing strategy and affects the profits and revenue that a company will eventually earn. According to The Entrepreneur's Guidebook (2001), to establish an effective pricing policy, a company needs to: * Define pricing objectives * Establish a simple yet effective pricing structure taking into consideration all business costs * Choose a pricing strategy that helps to establish a market presence * Adapt a general pricing policy in response to trends, industry practices and new innovative pricing strategies to help solidify a competitive position within the marketplace Any business, regardless of the industry needs to base a pricing plan on the company's goals and objectives. That means that pricing policies need to be closely aligned with the overall business and marketing plans. When setting price objectives, companies need to consider the effect that these prices will have on (The Entrepreneur's Guidebook, 2001): * Sales volume * Sales revenues * Market share * Competitive advantage * Company image * Profitability Determining the right type of pricing structure requires a strong understanding of the relationship between pricing and each of the factors listed above. ...read more.

Middle

Their big draw is word of mouth and their rewards program for their customers. Shoppers can see for themselves if the items they are buying are fresh and have the quality they are looking for. Buying a cup of coffee or a fast food hamburger is different. No matter what type of pricing strategy is used, companies must constantly evaluate the effects that their strategy is having on their overall success. McDonald's The fast food marketplace is highly competitive and strategies for providing consumers with offerings they will want requires pricing that will produce long-term results and keep customers coming back. According to Marc Ballon of the Los Angeles Times (2001), "McDonald's is working to shore up its domestic operations, largely by tightening operations and encouraging franchises to offer consumers better value." McDonald's conducted extensive research into sales and customer count, competitive offerings and prices and began to create "value" offerings for $.99. After testing certain segments of the marketplace, they launched a "discount" pricing program. By cutting down on operating costs and improving efficiency, the savings can be passed along to the customer. The customer believes that they are getting a bargain through special pricing. McDonald's continues to outpace Wendy's and others with annual sales of over $1.6 million. Their discounted pricing strategy does pose some problems, particularly with maintaining high quality and service. ...read more.

Conclusion

Although they remain highly competitive as far as pricing, they initiated a club card program that provides discounts and rewards for loyal customers. Supermarket chains across the country constantly try to beat their competitors and Tecso is following suite. They have based their strategy on being highly competitive and by providing a wide selection of products. According to Loop Consulting (2000), in the grocery market it would appear that you could compete on price and service but the two may be mutually exclusive. In a price war, the only way to win is by reducing the overall cost base, no the profit margins. Once a price has been reduced, it is less easy to return prices to their previous level without alienating customers. In fact, it will encourage shoppers to go wherever the price promotions are. So Tesco, although they implement pricing promotions are relying more heavily on their club card program, not only for customer loyalty but also to learn more about their customers buying habits. This can be an effective tool in planning promotional selling. Tesco must also consider competitive pricing policies based on what the competitors are charging for the same or equal products. The rule of thumb here is that even though less is being paid for an item, the company will make up the revenue on volume sales. Tesco closely follows its competitors pricing policies. Information Sources http://www.thoughtheloop.com. Loop Consulting. 1996-2000. The Entrepreneur's Guidebook Series. Patsula Media. 2001 Ballon, Marc. "McDonald's Looking for a Break" Los Angeles Times. December 2001. ...read more.

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