Pricing Strategies Assume you are the marketing manager for a local cable company. You have some direct competitors including AT&T U-verse and the Dish Network. Using the six steps outlined in your textbook for setting a pricing policy, prepare a report for your Vice President on your suggested pricing strategy for your service.
Be sure to include the following in your report:
Determine your price objective with your justification.
Determine the demand of your service and how this influences your pricing strategy.
Estimate your cost elements and analyze how this will influence the price of your service.
Propose a competitive price analysis.
Select your pricing method and determine your final price along with your justification.
Full Answer Section
1. Price Objective:
Our primary price objective is market penetration with sustainable profitability. We aim to capture a significant share of the local market by offering an attractive and competitive price point while ensuring sufficient revenue to cover costs and generate reasonable profit margins. This balanced approach will establish our brand as a strong value proposition in the market, attracting new customers and retaining existing ones.
2. Demand Analysis:
Local cable service demand is influenced by several factors:
- Availability of alternatives: AT&T U-verse and Dish Network are our main competitors, offering similar service packages. Analyzing their pricing and service offerings is crucial to understanding customer preferences and setting a competitive price.
- Customer value perception: Understanding the value customers place on our service helps determine the price they are willing to pay. High-quality content, reliable service, and strong customer support contribute to a higher perceived value, justifying a slightly higher price point.
- Market saturation: Analyzing overall demand for cable service in our local area and identifying potential growth segments, such as young families or cord-cutters looking to return to TV packages, will inform our pricing strategy.
3. Cost Analysis:
Estimating all cost elements associated with providing cable service is crucial for setting a viable price:
- Programing costs: Securing broadcast and cable channel rights is a significant expense. Negotiating favorable contracts with networks and content providers can help minimize costs.
- Infrastructure costs: Maintaining and upgrading cable infrastructure (lines, equipment) is an ongoing expense.
- Operational costs: Customer service, marketing, and administrative expenses need to be factored in.
- Profit margin: We need to determine a desired profit margin to ensure financial sustainability and reinvestment in service improvement.
4. Competitive Price Analysis:
Analyzing competitor pricing reveals:
- AT&T U-verse: Offers a similar Triple Play Bundle for $84.99 per month.
- Dish Network: Offers a comparable package for $74.99 per month, but with potential installation fees and less diverse channel options.
Our ideal price should be strategically positioned between these competitors, offering slightly better value than Dish Network while remaining competitive with AT&T U-verse.
5. Pricing Method and Final Price:
Based on our analysis, we recommend a value-based pricing strategy with a final price of $79.99 per month for our Triple Play Bundle. This price:
- Offers competitive value: Undercuts AT&T U-verse by $5 while remaining attractive compared to Dish Network.
- Recovers costs and generates profit: Ensures cost coverage and a reasonable profit margin for sustainable growth.
- Addresses customer value perception: Highlights the quality and variety of our service offerings, justifying the slightly higher price compared to Dish Network.
6. Implementation and Monitoring:
To effectively implement this pricing strategy, we recommend:
- Clear communication: Communicate the new pricing and promotional offers to customers through various channels, emphasizing the value proposition and competitive benefits.
- Bundled packages: Promote bundled packages (TV+internet, TV+phone) to encourage higher average revenue per user (ARPU).
- Introductory offers: Consider limited-time introductory discounts to attract new customers without sacrificing long-term profitability.
- Performance monitoring: Continuously monitor market trends, competitor pricing, and customer feedback to adapt and refine the pricing strategy as needed.
By adopting this comprehensive pricing strategy, we can effectively position our local cable service as a compelling value proposition within the competitive market. The chosen price point balances cost recovery, competitive value, and customer perception, allowing us to capture market share, retain existing customers, and achieve sustainable profitability in the long term.
Sample Answer
Pricing Strategy Report for Local Cable Company
To: Vice President of Marketing
From: Marketing Manager
Date: 2023-12-29
Subject: Proposed Pricing Strategy for Local Cable Service
Executive Summary:
This report outlines a comprehensive pricing strategy for our local cable service, taking into consideration competition, customer demand, cost analysis, and desired profitability. After careful analysis, we recommend a value-based pricing strategy with a competitive price of $79.99 per month for our Triple Play Bundle, which includes TV, internet, and phone services. This price point balances cost recovery, market competitiveness, and customer value perception, maximizing market share and long-term profitability.