Pricing

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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.

Sample Solution

To: Vice President of Marketing

From: Marketing Manager

Date: 29 December 2023

Subject: Proposed Pricing Strategy for Local Cable Service

Executive Summary

This report outlines a comprehensive pricing strategy for our local cable service, considering our competitive landscape, target audience, and cost structure. After analyzing the six key steps outlined in the textbook, we propose a value-based pricing strategy with tiered packages starting at Ksh 1,500 per month. This approach balances affordability with revenue generation, while prioritizing competitive advantage and customer satisfaction.

1. Determining Price Objectives

Our primary price objective is to maximize long-term profitability while capturing a significant share of the local market. We aim to achieve this by:

  • Attracting new customers with competitive introductory offers and value-packed packages.
  • Retaining existing customers through loyalty programs, bundled services, and exceptional customer service.
  • Generating healthy margins to cover operational costs, invest in network upgrades, and offer compelling service improvements.

2. Analyzing Demand and its Influence on Pricing

Understanding local consumer demand is crucial for setting competitive prices. We conducted market research and identified the following key insights:

  • Price sensitivity is high: Budget-conscious local consumers prioritize affordability.
  • Value-based packages are preferred: Customers seek bundles incorporating internet, TV, and streaming services.
  • High-speed internet is essential: Customers value reliable and fast internet connectivity.
  • Differentiated channel options are desired: Local channels and diverse programming cater to diverse preferences.

These insights highlight the need for flexible pricing options that cater to varying budgets and service preferences.

3. Estimating Cost Elements and Impact on Price

Our cost structure can be categorized into:

  • Fixed costs: Infrastructure maintenance, network operation, and administrative expenses.
  • Variable costs: Channel licensing fees, programing content, technical support, and customer service.

Minimizing variable costs through efficient network management and strategic content partnerships becomes crucial to maintain competitive pricing.

4. Competitive Price Analysis:

Analyzing pricing strategies of direct competitors like AT&T U-verse and Dish Network reveals:

  • Similar base price ranges: Introductory offers start around Ksh 1,500, with higher tiers reaching Ksh 4,000-5,000.
  • Bundled packages with limited variety: Most competitors offer basic, mid-tier, and premium packages with limited variation in channel options.
  • Emphasis on promotions and discounts: Introductory offers and loyalty programs are heavily advertised.

This analysis suggests an opportunity to differentiate ourselves by offering greater package customization and leveraging local content partnerships to cater to specific community interests.

5. Selecting Pricing Method and Setting Final Price:

Based on our analysis, a value-based pricing method aligned with a tiered package structure is recommended. This approach allows us to:

  • Offer competitive base prices: Starting at Ksh 1,500 for a basic package ensures market competitiveness.
  • Provide value-added tiers: Premium tiers with additional channels, higher internet speeds, and bundled services justify higher price points.
  • Cater to diverse needs: Flexible package customization based on channel preferences enables targeted customer acquisition.

Therefore, we propose the following tiered pricing structure:

Package Monthly Price Key Features
Basic Ksh 1,500 Essential channels, 50 Mbps internet
Standard Ksh 2,500 Expanded channels, 100 Mbps internet
Premium Ksh 3,500 Sports, movie channels, 200 Mbps internet, streaming service subscription
Custom (per channel) Ksh 100/channel Freedom to add desired channels to any tier

Justification:

  • This structure balances affordability with value, addressing diverse customer needs while ensuring profitability.
  • The starting price point is competitive, attracting budget-conscious customers.
  • Higher tiers offer attractive features and justify higher prices.
  • Custom channel options cater to niche interests and generate additional revenue.

6. Implementation and Future Considerations

We recommend introducing this pricing strategy with a targeted marketing campaign highlighting the benefits of our value-based packages, customization options, and competitive price points. Regular monitoring of customer feedback and competitor pricing should be conducted to adapt and refine our strategy over time.

Conclusion

This proposed pricing strategy balances affordability, value, and profitability, positioning us for success in the local cable market. By focusing on customer needs, providing flexible options, and maintaining market competitiveness, we can achieve our long-term revenue and growth objectives.

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