Week 6

There is always something interesting happening in the marketing world, whether its a new advertisement, product or store-wide sale or a new promotion. Since today is mothers day I noticed a lot of related items. There were sales at almost all of the department stores, people selling flowers at the gas station and I noticed many sales in my email. The emails were what caught my attention. There were sales from various companies adverting for discounts ranging from 10% off to 35% off. These emails show how companies use holidays to run sales and promotions to attract customers.

This week we read in Cohen's book. The chapter was all about pricing and the different theories Drucker has about pricing. One of Drucker's theories is the myth of the irrational customers. This theory states that "if something fails to respond to what the theory predicts, it is not a demonstration if irrationality. Rather, something is wrong with the theory and has to be changed." I think that customers can be irrational, overpaying for products or making decisions based on price not quality. There is more to a decision making then just the price. The product or service needs to meet the customer's needs. In the construction industry pricing is very important. If our estimators can price a job lower than our competitors we usually get the job. But, in other instances we have priced a job $100,000 less than a competitor and did not get the job. We do not know why the customer made this decision but there must have been factors other then price involved. Drucker had his own views on how a product should be priced. He did not say that a product should be sold at X to make a profit of Y.  Instead, he believes that companies should price a product based on what the customer would pay. The cost of the product should be adjusted based on the price customers will pay.

Net marketing contribution is a measure of contribution to company profits after marketing and sales expenses are accounted for.The net marketing contribution formula is NMC = Market demand * Market share * Selling price * Consumer demand  * Margin% - Marketing expenses. Different pricing strategies will affect how a company views their NMC. Companies using a pricing strategy of profit oriented will analyze the entire NMC and look for higher contributions. Sales oriented companies will look for a high market share. Companies that are customer oriented will look at market demand and market share while competitor oriented companies will look at market share and selling price. Based on the company's pricing strategy the NMC will be different. The NMC is used to determine if the marketing strategy can cover the total costs associated with marketing, advertising and sales. 

This week we also talked about four different pricing strategies, everyday low pricing (the Walmart strategy), high/low pricing (department store strategy), new product (skimming and penetration) and status quo. Everyday low pricing is the strategy of Walmart and similar stores. They price products low every day, they do not offer too many sales. I do not think this strategy would work in Pharmasim. Price is not one of top factors customers look at when purchasing cold medicine. Next, high low pricing is the strategy is used by companies like Macy's or Lord and Taylor's. They have a variety of products in their stores, some priced high and some low. They usually base the price on the popularity and timing of the product. For example, a new line of shirts is released for the spring season, these items are priced high. When summer comes along and new products are in the store they offer sales and discounts on the spring line. Again, this strategy would not work in Pharmasim as customers purchase cold medicine as needed.

When bringing new products to the market there are two useful strategies. First is the skimming strategy. Second is the penetration strategy. Skimming is the process of pricing a new product high when it first enters the market and then lower the price overtime. This strategy could work in Pharmasim when bringing a new product to market. For example, if we introduced a new 4-hour cold medicine we could price it high at first and then lower the price in the next period. We could gain back some of the original expenses in the first period and then hopefully increase sales in the second period with a lower price. Next is the penetration strategy.  This strategy is the process of bringing a new product to the market where a competitors product is very similar. Using this strategy we would try to steal customers from our competition. I think this would be the best strategy to implement into Pharmasim. We could introduce a new product like a 4-hour cold medicine into the market. There is already competition for this product but we are trying to take customers from our competitors. Customers would be attracted to this new product because of the Allround brand name. Pricing can be a complicated process in any business and we be very important while playing Pharmasim.