The two reasons that a firm may want to skim are to maximise their revenue before competition enters the market.
Customer value pricing
This involves charging the price that consumers are willing to pay. Products, which have prestige names, attached to them; such as Nike will be able to charge higher prices due to the status involved in the brand name. This works in almost the same way as Pepsi. Happy shopper could not charge more than Pepsi for the same amount of a similar drink, as it has not got a large brand name, unlike the one that Pepsi and Coca-Cola have. This could also be taken advantage of by Pepsi as at one off events such as festivals, canned drinks are usually unique, and so a higher price can be charged, such as from vending machines in special places, or food vendors at football matches.
Competition based pricing
With competition based pricing it is the prices charged by competitors that decide the price a firm is going to charge. It is used mostly by firms that are in fierce and direct competition, and have many competitors in their market. This is very relevant to Pepsi, as they would not be able to remain a success if they charge more than Coca-Cola, and so if Coca-Cola drop prices, Pepsi must do so as well almost immediately. The bad side to this is if competitors try to use destroyer-pricing methods, as a result one or more firms could go out of business.
Destroyer Pricing
The aim of destroyer pricing is to eliminate the opposition. It involves heavily cutting prices, sometimes over a long period of time, long enough for a member of the competition to go out of business. It could even result in Pepsi making a loss, but it would reduce competition, and so would easily recover costs, as they would gain a bigger market share.
Pepsi pricing
Pepsi can use many of the different pricing strategies, but there are some that are more relevant than others. The ones Pepsi should seriously consider are, Cost plus pricing, Market orientated pricing, competition based pricing, and destroyer pricing, as these are more effective for a well established company, with a powerful brand name.
I believe Pepsi are best using the Cost plus pricing strategy, and the competition based strategy. In doing this Pepsi ensure that they cover all of their costs, and make a profit margin, and they also manage to remain competitive, and in line with their competition, and therefore from doing previous research into my competition, and into the cost of making a can, and therefore I feel and ideal price is £0.49, which also incurs a small aspect of psychological pricing, with means instead of charging fifty pence, we charge forty nine, making people think we charge less, this is because.
The cost of producing a can of Pepsi, including a small amount of labour cost, and overheads, and machinery costs is roughly about £0.27, and then adding a mark up is £0.22, and so a final consumer charge is £0.49
Promotion
There are many ways in which Pepsi can successfully advertise itself. However it is very costly. The main purpose of advertising a product is to create awareness between the product and the consumer. This is done at a very high cost, and a firm needs to have a good financial background in order to obtain successful advertising and create good awareness, from consumers.
There are many different ways in which Pepsi could advertise, some ideal marketing strategies are described below, alongside, the prices are also shown, obtained from a promotions company over the last year.
The television advertising I have chosen is both on terrestrial television and on sky and cable. In doing this I aim to attract more of a market, as not everyone has sky or cable, but those that have tend to watch sky channels more than normal television channels. To advertise on sky one and on MTV will cost £9,000 per advert that is shown, and £10,000 with ITV. It is not going to be enough just to show the advert once on each channel however, and so I suggest that at least 14 adverts are shown on each channel. This means that I would like to spend £280,000 is to be spend on television advertising. I believe it is a good investment as there are 9.47 million televisions in homes all over the UK.
Celebrity association is a very expensive advertising technique, however it creates almost instant awareness providing the celebrity used, appeals to the target market. This will however cost £1million pounds to have a celebrity advert on television, and £1 million pounds to have celebrity advertising in magazines, and so I have decided it would be more profitable to use television advertising with my celebrity.
I have also decided that Pepsi need to have a better web site service available that is more fetching and appealing to the target market. In doing this is means that people will see our website address on our cans and television commercials and should hopefully be interested in what is on the internet site, which then we can offer small games, and competitions for consumers to do.
I believe also that it is a good idea to advertise in some magazines. I feel this as people within my target market often read popular magazines, as I found out in my primary research, FHM is a very popular magazine, and for this reason I believe spending £10,000 per placement is a good investment. I would therefore allow enough money for 10 placements in the monthly magazine.
A personal idea I had about the use of the Internet is to set up a personal website, but to also offer sponsorships to other popular websites such as hotmail, and other text messaging services on the Internet.
From doing my primary research I have realised that just less than 50% of people asked, said that they noticed web banners, either a lot or occasionally, and so this could be an advantage to Pepsi, as a web banner can be set to re-open at any time someone looks at a particular web page, for example hotmail or Genie. The overall web access within the people asked is 46%, with a further 13% saying that had access at either their place of education of employment. By knowing this I can construct a good promotional plan to advertise Pepsi on the Internet and in chat rooms.
It appears that there is money left over in my campaign, and this is because there are other ideas such as internet advertising and prime location testing to be carried out, and without an exact figure to work with I have estimated doing these optional ideas will result in all of my marketing budget being used.
In doing the television advertising I feel it would be a good idea to advertise when primetime television is on BBC 1, however there is a constraint involved as the BBC do not allow advertising, and so the next best options available to me are, ITV skyone and MTV. This is defined by my primary research telling me that the BBC and Sky one had equal amounts of popularity, within my target market.
An idea I had about raising awareness was to stand outside a popular shop and offer people free samples, or get them to take a test of which one people prefer out of coke and Pepsi, and if they guess which is which, they get a free can of Pepsi. From doing my primary research I have realised that there are a number of particular shops that my target market use, including JJB sports, and McDonalds. This is also true as shown in the results from a question that asks about people’s loyalty cards.
I would also like to have some music in one of my adverts, and maybe a voice over sound of someone talking about Pepsi but I only have been allowed a budget of £3million pounds, and so I can not afford to deploy this form of advertising.
This is not the only external constraint acting on my marketing strategy. There are a number of others including legal constraints such as the trading standards agency, and the advertising standards agency. There is always the internal constraint of money and time which is present with any company promoting a product. The advertising has to be completely accurate the first time, and as a result long term careful planning is required. From looking at the PEST and SWOT diagrams for Pepsi it is clear that time is not on our side, as the economy is in a good position at the moment and appears to be holding strong, as it would be an ideal opportunity to give Pepsi extra promotions.
Although there are factors effecting how quickly and successfully I can promote Pepsi, now is a good time for extra promotions, and repeated messages to our target market.
This is because as shown in my PEST analysis unemployment is falling, and so studying the structure of fiscal and monetary policies, people within the economy have more money to spend.
PLACE
The placing of a product is where the product will be sold. It plays a critical part in the marketing mix, as people within the target market need to be able to get hold of Pepsi easily, they don’t want to have to travel to a shop on the other side of town, just for one can of Pepsi. The target market needs to be able to get Pepsi easily, and in places they would expect it to be.
From doing my primary research with the question I have managed to establish what the top shops are for people within my target market. The shops that they visit on a frequent basis, are JJB sports and Macdonald’s. This is evident also when looking at the graph showing for what shops people have loyalty cards for, and again JJB sports and also JD sports are the most popular.
It could also prove to be beneficial for Pepsi to have agreements with other companies dealing with the same target market. This could be for example that Pepsi pay the for vending machines to be placed in large central venues such as the Coventry Skydome. Another business that Pepsi have worked in conjunction with previously are KFC. Pepsi reduces their fees for supplying KFC with Pepsi, and as a result KFC only stock Pepsi and not Coke, and so Pepsi gain an instant bigger market share.
Youth clubs although old fashioned are also a good opportunity for Pepsi to increase their sales. In having vending machines in key places such as youth clubs, or places where people meet it should result in more sales. As a result of this I will employ vending machines into youth centres, nation-wide, as well as vending machines and stands at major sporting events such as the entrance to football grounds, as well as having shops in prime locations such as touristic venues, for example outside Buckingham palace.
There are however constraints to this type of product placing. These are that special licenses are required to sell things at prime locations, or in the city centre, or somewhere which is not normally a shop. It also means that there will be a large cost involved in supplied all of these venues with stands and machines.
The Product
I am not going to change the appearance of the can, or the name of my Pepsi drink, as it has taken a long time for the current status of Pepsi’s brand name to become recognised., and changing the product too drastically could result in people thinking it is a different drink, or that Pepsi has been withdrawn from the market.
I intend to keep the current design for each of my drinks, which is as follows.
Dale Hamill Year 12 Advanced Business