Pricing Decisions
Describe the strategic implications that would need to be considered in setting a price for that product
The public company selected for this analysis is Coca Cola Company. The identified product of the company is the Coca-Cola 20 fl oz bottle, which can be typically obtained from a convenient store, vending machine as well as super market. There are strategic implications that would need to be taken into consideration in setting the price of this particular product, which include the following:
1. Competition in the market
Rivals in the market have a significant impact on pricing decisions. Imperatively, the comparative market shares of market rivals impacts whether an organization can set prices independently or whether such decisions take into account the direction taken by competitors. In this case, Coca Cola Company faces intense competition from brands such as Pepsi and Dr. Pepper who have also unveiled similar products. Despite its dominance in the market, the pricing decisions for this products is determined by the direction taken by competitors because the consumers might opt for the substitute products (Schindler and Schindler, 2011). For instance, the competition between Coca Cola and Pepsi is intense and one that has prevailed for several years. The companies manufacture beverage products that are similar and therefore the pricing decision to set the price of such a product has to consider the direction taken by the rival in order to ensure that it does not have an adverse impact on the company.
2. Costs
Another strategic implication to consider is cost. It is important to note that a business cannot disregard the cost of production or purchasing a product with respect to setting the product selling price. This is largely for the reason that in the long run, Coca Cola may experience losses or even failure if it sells the product for a lesser price than the cost incurred for production or if the gross profit generate is unable to cater to the fixed expenses (Schindler and Schindler, 2011).
3. The position of the market for the product
Strategically, the market state of affairs of the market for the product also makes a determination...
This is in the sense that if the product has a high demand level in the market, but there is a short supply of such similar products, them the price set by the company can be relatively high (Schindler, 2011).
4. The bargaining power of consumers in the targeted market
The pricing decision of the product is also affected by the consumer bargaining power. It is imperative to consider the purchasers of the product and whether they have any bargaining power over the price that is set. If the consumers can easily purchase similar beverages in the market, then they have bargaining power (Schindler, 2011).
Determine whether a market-based pricing approach or a cost-based pricing approach to setting the product price
Cost-based pricing encompasses the calculation of the cost of the product and thereafter including a percentage mark-up to make a determination of the product price. It can either be full cost pricing or direct cost pricing. This is a pricing approach used by corporations to maximize their profits. On the other hand, market-based pricing approach also referred to as competition-based pricing takes into account instances where a corporation sets a product price for its goods on the basis of what competitors are retailing a similar product for. If market rivals are pricing their products at a price that is lower, then the decision lies with the company on whether to price their products at a higher or lower price, reliant on what they purpose to accomplish. A key benefit of this approach is that it evades price competition that may be detrimental to the company (Paul, 2008). In this case, the pricing approach selected for the Coca-Cola 20 fl oz bottle is the market-based approach.
Explain the rationale behind choosing the pricing approach
The rationale for setting this pricing approach is associated to the fact that Coca Cola Company makes use of market situation to price its different product items in order to meet the competition and contenders against major players such as Pepsi and Dr. Pepper. Therefore, the company values and sets prices for products around an equivalent level of competition. In this manner, the essential approach…
