The Role of Cost Information in the Pricing Decision

Pricing Decisions: The Role of Cost Information In the Pricing Decision

Prompt:

The Role of Cost Information in the Pricing DecisionYou are working in the management accounting department of ABC which manufactures a range of consumer electronics products. The current range comprises 50 different products and the company launches around 10 new products every year.

Your manager has asked you to write a paper which addresses issues relating to pricing decisions for all the company’s products, with a particular focus on the prices set for new products.

The current approach used by the company is a cost based approach by which a predetermined percentage is added to the estimated full cost of the product. However the directors of the company have recently questioned this approach.

You are required to discuss the following in your paper:

  • The role of cost information in the pricing decision.
  • The advantages and limitations of the company’s current approach.
  • A range of alternative strategies for pricing products which could be adopted by the company, including a discussion of the circumstances for which the different strategies would be appropriate.

Discussions have been taking place within the company concerning the pricing of one of the products to be launched within the next three months. The current planned selling price is £60 per unit and at this price it is expected that 5,000 units will be sold over the next year. However the marketing director has suggested that the sales quantity and profits from this product could be increased by reducing the unit selling price. The production director disagrees and believes that the selling price would have to be increased to improve the level of the profit.

You are required to:

  • Analyse the relationship between selling price and the level of profit for this product based on the information provided in this briefing.
  • Within your paper, present your analysis in an appropriate format. This analysis should include an appropriate chart or charts as an integral part of your paper.
  • Provide a full commentary on your analysis. This discussion should include the assumptions in and the limitations of your approach, a discussion of the views of the two directors related to the conclusions of your analysis and an assessment of the relevance to the organisation’s pricing decisions in the light of your answer to part a).

Note: you should use a spreadsheet for the calculations which underpin the analysis presented in the paper. Your spreadsheet must be submitted to support your paper.

Additional information:

The company estimates product costs based on apportionment of overheads to products using labour hours. Prices set are based on full cost plus a 25% profit mark-up.

The following information relates to this product:

  • The manufacture of each unit of the product requires materials costing £24 and 30 minutes of direct labour at a rate of £25 per hour.
  • The variable overhead costs per unit are £5.50 per unit.
  • Fixed costs for the year to be apportioned to this product are expected to be:
  • Production costs: £24,000
  • Administration and management costs: £5,000
  • Selling costs: £1,000
  • Some market research has recently been carried out to try and determine the effect on the level of sales demand if changes were made to the selling price of the product. This market research has suggested that reducing the selling price to £57 would increase the sales volume to 5,250 units for the year whereas increasing the selling price to £63 would result in a fall in sales to 4,750 units during the same period.

Assessment criteria
(10%)  Discussion of the importance of cost information for pricing
(10%)  Discussion of the advantages and limitations of the company’s current approach.
(25%)  Review of alternative strategies for pricing products.
(10%)  Analysis of scenario
(25%)  Commentary on spreadsheet analysis and presentation of results.      
(10%)  Effective communication and appropriate style of presentation.
(10%)  Use and presentation of academic research to support arguments.

Pricing Decisions

The role of cost information in the pricing decision

Cost is one of the factors that affect pricing decisions, hence cost information is an important factor in coming up with pricing decisions (University of Minnesota, 2015). Costs can influence prices through its effect on supply. In this regard, a company will be willing to supply more products the more the cost is lower relative to the price. It is often the case that as the firm increases supply of a product, the cost of producing an additional unit initially decreases. However, a point is reached where the cost of producing an additional unit begins to rise. The company will be willing to continue to supply its products for as long as the profit it makes from selling extra units exceeds the cost of producing them (the extra units). Another way that costs influence pricing is that all the costs incurred by the firm should be recouped through its product sales (Meehan et al., 2011; Smith, 2011). This means that the higher the units of a product that a firm sells, the less each unit is required to contribute towards covering the fixed costs. This in turn implies that the firm can afford to set a lower price for its products if it applies a cost-based approach to pricing or can make higher profits if applies value-based pricing (Leijon, 2017). It is by understanding the cost of producing the products that companies can set product prices so that they (the prices) appeal to consumers and at the same time serve to maximize operating income (Tarjomefa, 2015). Continue reading

Richard Branson and the Virgin Group Case Study

Richard Branson and the Virgin Group Case Study

Richard Branson and the Virgin Group Case Study1. What common resources and capabilities link the separate Virgin companies? (30%)
2. Which business if any should Branson consider divesting? What criteria should he use in deciding what new diversification strategy to pursue? (40%)
3. What changes in the organisational structure and management systems of the Virgin Group would you recommend? (30%) PowerPoint presentation

This case study is based on Case 20: The Virgin Group in 2015 in the book in Robert M. Grant’s book Contemporary Strategy Analysis. The case study touches on competitive strategy and innovation, strategic management. 

The sample solution is presented in a PowerPoint Presentation with speaker notes (at the bottom of each slide).  

Contents

  • Introduction
  • Resources and capabilities
  • Virgin companies shared resources and capabilities
  • Divesting criteria and businesses to divest
  • New diversification strategy and decision criteria
  • Organisational structure change recommendations
  • Management systems change recommendations

Richard Branson and the Virgin Group Case Study

Introduction

The Virgin Group was established by renowned entrepreneur, Richard Branson. The history of the group can be traced back to 1968 when Branson formed the Student magazine after dropping out of school. Over the years, The Virgin Group has grown to become a highly diversified organisation with operations in several industry segments and countries. The group so far operates in the UK, the United States, Australia, Russia, South Africa, and Canada among several others.  Some of the areas the group mainly focuses on are Telecoms and Media, Music and Entertainment, Financial Services, Travel and Leisure, and Health & Wellness (Virgin Group 2017).

The Group boasts of owning hundreds of companies directly or through its subsidiaries. It also boasts of having holding companies in seven main business categories. In addition, it has a stake in several companies, such stake acquired through the formation of joint ventures with other corporations.

Virgin Group has a strong asset base and its success has partly been attributed to the reputation and celebrity status of its founder, Richard Branson. Some of the Group’s notable assets include its fleets of airplanes, trains, and megastores. In addition to these, it has several resources including a strong brand name, a good reputation, talented human resources, and finances. In combination, these resources have helped the group develop capabilities and competencies in different areas.

One of the resources shared by the Virgin companies is the Virgin brand…

Continue reading

Harwell Fashion Product Life Cycle

Prompt:
Harwell group expresses their gratitude for the last advice you provided when they were venturing into the food and drinks business….

Harwell group case study: This paper discusses Harwell fashion business stage of the product life cycle and provides advice on next steps. The paper reviews a minimum of three strategic management models relevant to Harwell group based on the strategic choices available to the group. The paper provides advice on how consumers can become attached and remain loyal to ‘Zest’ over other energy drinks. The paper also provides recommendations on how Harwell group can change its system and manage the change management process effectively and without disrupting its current sales and marketing while effecting the changes. 

Harwell Group Business Strategy

Introduction

Harwell Group is a company based in Scotland that so far has four businesses (sports, events, fitness, and fashion). Considering that it is experiencing reduced profits in these business areas and especially fashion, the business considered the option of entering the energy drinks market by offering a canned energy drink (Zest) as its product and sought advice on this matter. …

The Life cycle Stage of the Fashion Business

One of the businesses that Harwell Group engages in is fashion. To establish what is ailing the fashion industry, it is vital to consider the business and its products in light of product life cycle. Stark (2015) notes that the product life cycle is an essential concept in marketing. Product life cycle basically describes the stages that a product undergoes from the time it is first conceived to when it is eventually removed from the market. Not all products reach the final stage; while some rise and fall, others continue on the growth path. The product life cycle has four main stages … including introduction, growth, maturity, and decline as can be seen in figure 1. …

Strategic Choices for Harwell Group

With several brands and businesses, including fashion, in its portfolio, Harwell Group is probably faced with the challenge of how to allocate its limited resources for investment across its businesses. It may decide to close the unprofitable fashion business altogether or continue operating it. One model that can help the company decide whether or not to close the fashion business is the Boston … Commonly known as the Boston …, the model analyses a portfolio of products or businesses based on market share and market growth (Marci, 2017). Based on these two factors, the Boston … categorises products into one of four areas; stars, … and dogs (Marci, 2017), as can be seen in figure 2. continue reading

Contents:

  • Executive Summary
  • Introduction
  • The Lifecycle Stage of the Fashion Business
  • Strategic Choices for Harwell Group
  • How to Attract Customer Loyalty to Zest
  • Management of Change Relating to the New IT System
  • Summary and Conclusion
  • References

Harwell Fashion Product Life Cycle

Harwell Energy Drink Business

Prompt: Harwell ltd. was established in 1974 in Scotland by Lewis and Rebecca Harwell. Their vision is to build a chain of companies within the Harwell group. Currently they have established four different companies which are up and running in various industries, they include: fashion, sports, events and fitness. Their most recent investment was in the IT industry but this eventually became unsuccessful. Lewis and Rebecca are now set to take on a new investment and the group’s net worth has recently been valued at £6.7 million. They plan to venture into the food and drinks industry particularly focusing on the production of canned energy drinks. Although this is a highly competitive sector of the food industry, they have both chosen this because of the increase in demand for energy drinks. Based on your knowledge of strategic position, Lewis and Rebecca have requested you carry out a thorough analysis on their new investment carefully considering the followings:

  1. The external business environment and how this may influence the new investment
  2. Competitive/market forces that would impact this business both positively and negatively
  3. What marketing/penetration strategies do you think can be implemented to boost the market share of this product, hence increasing sales and profit margins
  4. Critically analyse the marketing mix and suggest the most appropriate marketing mix for this product.

Hint: Your advice should be mainly based on key strategic theories and frameworks. You are allowed to make reasonable assumptions stating clear reasons for these if you need to do so –  Harwell energy drink business –Harwell Group Investment in Energy Drink Business (below).  

Harwell Group Investment in Energy Drink Business

Introduction

Deciding on whether or not to venture into a particular business is an important strategic decision. Careful consideration guided by a thorough analysis of different factors should be done before making such a decision. An analysis of the internal and external business environments should be done to help decide whether or not it is worth venturing into the new business (Pal, 2000). The external business environment greatly affects the chances of a company succeeding in a given industry or market (Thilakasiri, 2018). It is also crucial for business owners and managers to evaluate the competitive forces, penetration strategies, and market mix to be applied by their business as these also significantly affect the chances of the business’ success. Against this background, Harwell Group, which is considering the option of venturing into the energy drinks business in the United Kingdom, should analyse the external business environment and competitive forces in relation to the energy drinks market before deciding on whether or not to invest in this business.

This paper analyses the external business environment in relation to the energy drinks market in the UK through a pestle analysis. A pestle analysis evaluates the political, economic, social, technological, legal, and environmental factors that make up the business environment (Kayumi, 2014). A pestle analysis has been chosen in this case, considering its capacity to assess the prevailing business environment and changes that can potentially affect it (Kayumi, 2014). In addition, the paper will analyse the competitive environment in relation to the energy drinks market. Based on the results of these analyses, recommendations will be made on whether Harwell Group should go ahead and invest in the energy drinks business, the most appropriate penetration strategy, and the best marketing mix to apply.

External Business Environment

Political Factors

Political factors touch on how and the extent to which government intervenes in the economy. Given that Harwell Group is based in Scotland, it is subject to the political environment of the United Kingdom. The UK has enjoyed political stability for a long time, is governed by the rule of law, and is based on democracy (Trading Economics, 2021). The political environment of the nation is such that doing legal business is encouraged. Recently, there have been growing calls for Scotland to break away from the UK, which could have far-reaching effects on the political, economic, social, and legal environments, and by extension, the business environment in Scotland and the rest of the UK (Milligan, 2021). From the outlook, there is little chance that such a change can occur within the next five years, which possibly implies the continued political stability of the UK in the next ten or so years. The UK government constantly monitors the inflation level and takes appropriate measures to see that the annual rate averages 2% (Bank of England, 2021).

Continue …

Alternative link.  

Contents
Executive Summary
Introduction
External Business Environment
Political Factors
Economic
Social
Technological
Legal Factors
Environmental
Competitive/ Market Forces
Buyer Power
Supplier Power
Competitive Rivalry
Threat of Substitution
Threat of New Entry
Marketing/Penetration Strategies
Marketing Mix
Conclusion
References
Appendix 1: Prompt

Keywords: Harwell external business environment, Harwell Competitive forces, Harwell  market forces, Harwell Marketing Strategies, Harwell Penetration Strategies, Harwell Marketing Mix, Harwell Energy Drinks. 

Harwell Energy Drinks Business

Main Features of Haier’s Internationalization Strategy

What are the main features of Haier’s internationalization strategy since early 1990s and how does it differ from the pattern of international typical of Western enterprises? How successful has Haier’s internationalization strategy been and why? What are the principal features of Haier’s management system? In what ways do Haier’s principles and methods of management differ from those deployed by Western companies? What lessons might be drawn by a) other Chinese companies and b) by Western enterprises? – Haier Group Internationalization Strategy and Management System (below).

Key text: Grant, R (2016). Contemporary Strategy Analysis.

Haier Group Internationalization Strategy

Haier Group’s Internationalization Strategy and Management System

Introduction

Haier Group is a multinational company that manufactures and markets home appliances and consumer electronic products. Simply referred to as Haier, the group started off as a small bankrupt company called Qingdao General Refrigerator Factory before growing to become a global leader in the production of house hold appliances. Today, the company markets its products in well over 100 countries across the world (Haier UK 2014). While the company has its global headquarters in Qingdao China, it has a number of regional headquarters (including Paris and New York) to serve its clients in the respective regions. There is wide agreement among business experts and scholars that Zhang Rumin contributed greatly to the growth and success of Haier. As CEO of the company, Zhang saw the company transform from the bankrupt Qingdao General Refrigerator Factory to the highly successful and leading brand that it is today. Under his leadership, the company focused on producing high quality products and began applying a management system that was customer centric with product development focusing greatly on fulfilling consumers’ needs. The company also began and greatly advanced its internationalisation journey under Zhang’s leadership. Haier’s internationalisation strategy and management methods have been a subject of great praise and admiration worldwide given their contributions to the Group’s success. However, they have also been criticised by pundits who feel that the strategy was not as orderly and not as integrated as it should have been. Questions have also been raised regarding the cohesiveness of the strategy and its rationale especially considering its uneven performance in different markets. These criticisms notwithstanding, there is wide consensus that the strategy was a success and that it presents important lessons for companies that wish to internationalise. This paper discusses Haier’s internationalisation strategy and the Group’s management system as established by Zhang Rumin. More specifically, the paper answers the questions: What are the main features of Haier’s internationalization strategy since early 1990s and how does it differ from the pattern of international development typical of Western enterprises? How successful has Haier’s internationalization strategy been and why? What are the principal features of Haier’s management system? In what ways do Haier’s principles and methods of management differ from those deployed by Western companies? What lessons might be drawn by a) other Chinese companies and b) by Western enterprises?

The Main Features of Haier’s Internationalization Strategy and How the Strategy Differs From the Pattern of International Development Typical of Western Enterprises

Companies can expand beyond national markets through internationalisation. An internationalisation strategy is basically the strategy that a firm applies to sell its products in foreign markets. It involves applying one or more modes of international business (Chryssochoidis and Clegg 1997). Some of the modes of international business include exporting, licensing, franchising, partnering or strategic alliance, acquisition, establishing new, wholly owned subsidiary, and joint venture (Shaker et al. 2000; Azuayi 2016).  In different situations, Haier applied different modes of international business. To enter the U.S. market, for example, the company initially exported manufactured products to the country and relied on a strategic partner (Wellbilt Appliances) to distribute the products. To market its products in the Netherlands, Germany, and Italy, the company exported its products under the Haier brand (Grant 2016). In countries such as Malaysia, Indonesia, and Philippines, the company formed joint ventures with local companies and relied on them to produce and sell products such as refrigerators and air conditioners (Grant 2016). For Haier, the goal behind its internationalisation was to build a global brand and to become an internationally competitive brand, rather than merely to exploit China’s low manufacturing costs (Grant 2016). In addition, the company sought to create the famous brand of China in the world through its internationalisation. Furthermore, it was aimed at challenging the company to raise to word-class level its standards of marketing, customer service, manufacturing, and product development (Grant 2016). The internationalisation strategy applied by Haier had certain key features which will be discussed in the following sections. Read more

One key feature of Haier’s Internationalisation strategy was its focus on entering and tackling difficult or more sophisticated markets first before tackling easy or less developed ones. As noted by Yan and Guanli (2011), in the process of internationalisation, companies have two modes or options. Continue …

Alternative link

Contents

  • Introduction
  • The Main Features of Haier’s Internationalization Strategy and How the Strategy Differs From the Pattern of International Development Typical of Western Enterprises
  • The Uppsala Model in Relation to Haier’s Internationalisation Strategy
  • The Success of Haier’s Internationalization Strategy
  • Principal Features of Haier’s Management System
  • Haier’s Principles and Methods of Management
  • Lessons that can be Learnt from Haier
  • Conclusion
  • References

Download paper

How Jeff Immelt Redirected the Strategy of GE

1. In what ways has Jeff Immelt redirected the strategy of GE? 
2. To what extent is the strategy aligned with
         a. The requirements of the 21st century business environment?
         b. GE’s resources & capabilities?
3. What organisational changes has the new strategy necessitated? Will GE         be able to successfully execute the new strategy?
4. What alternative strategies should GE consider?

General Electric Case Study

General Electric Case StudyIntroduction          

The term “strategy” comes from the Greek word “Strategos” which means “generalship” (Nickols 2016). Strategy is a common term or concept in the business field today, having been borrowed from the military. The term has been defined in different ways by scholars and experts. Johnson and Scholes (2011) define the concept as the long-term direction that a firm assumes. On the other hand, Chandler (1963) defines it as the determination of long-term objectives and goals of an organisation and relates it to the actions and allocation of resources needed for the achievement of the organisation’s goals and objectives. On his part, Steiner (2008) associates strategy with the actions that one takes to counter the predicted or actual moves of an opponent. According to Mintzber (1994), strategy is commonly applied in four different ways; as a position, as a pattern, as a plan, and finally as a perspective. Business organisations develop and apply different strategies to achieve their objectives and goals, respond to changes in the business environment, and to counter the moves taken by their competitors. This paper will focus on the strategy of General Electric (GE) under the direction of Jeff Immelt. The paper will begin by providing a background to General electric and its strategy under the leadership of Jeff Immelt before discussing the how the company’s Strategy was aligned with the 21st century business environment. The paper will then discuss GE’s strategy alignment with the company’s resources and capabilities and organisational changes in the company concluding with a brief discussion of alternative strategies that General Electric could have adopted. Continue reading: 30-64.

Alternative link … (code 30-64). 

The Launch of a New Product Under Consideration

1. Solved: The launch of a new product is under consideration. Its unit variable costs will be £30 and it is estimated that incremental fixed costs of £250,000 will be incurred if production is commenced. Forecast sales are 50,000 units. At what level of price for the new product will the organisation break even? If the actual planned selling price is £48 per unit, what will be the organisation’s margin of safety? 2. The following information is about two organisations, A and B. Organisation A Organisation B £ £ Fixed costs 60,000 12,000 Variable costs per unit 0.20 0.50 Unit selling price 0.60 0.60 Expected sales levels (units) 160,000 160,000 Which firm has higher operating gearing? What is the expected net income of both firms? What would expected net income be for both firms if sales were a) 140,000 units and b) 180,000 units? Which firm is facing more risk in terms of its current sales predictions?

2. Solved: The following information is about two organisations, A and B.

  Organisation A Organisation B
  £ £
Fixed costs 60,000 12,000
 Variable costs per unit 0.2 0.5
Unit selling price 0.6 0.6
Expected sales levels (units) 160,000  160,000
  • Which firm has higher operating gearing? What is the expected net income of both firms?
  • What would expected net income be for both firms if sales were (a) 140,000 units and (b) 180,000 units?
  • Which firm is facing more risk in terms of its current sales predictions?
    Be sure to demonstrate your numerical workings.

Launch of a new product …

Solutions

1 (a)  At what level of price for the new product will the organisation break even?
Variable cost per unit = £30
Fixed costs = £250,000
b (in terms of price) = ?
Total sales revenue = fixed costs + total variable costs
50,000 units x b = £250,000 + (£30 x 50,000)
b = (250,000+ 1,500,000)/50,000
Break-even price =                          Read more …..

b) If the actual planned selling price is £48 per unit, what will be the organisation  Read more ….

2 a) Which firm has higher operating gearing?
An activity with relatively high fixed costs compared with its variable costs has a high operating gearing (Atrill and McLaney 2006, p. 229). According to Cima Global (2006), one way of determining operational gearing is by evaluating the contribution-to-sales ratio (C/S ratio). A low C/S ratio indicates that a business has low proportion of fixed costs and vice versa (Cima Global, 2006).

The contribution per unit for organisation A is £0.4 (0.6-0.2) while that for organisation B is £0.1 (0.6-0.5).
Contribution‑to‑sales ratio = (Contribution per unit / Sales price per unit) as a percentage
Contribution-to-sale ratio for:

Organisation A = (0.4/0.6) x 100= 67%
Organisation B = (0.1/0.6) x 100= 17%
 Read more … 

b) What is the expected net income of both firms?  Read more ….

PESTLE Analysis for Air Pollution Eating Bikes

PESTLE Analysis for Air Pollution Eating Bikes in Poland

Introduction
As part of its growth strategy, ABC Bicycle Company, a company based in London, seeks to enter the Polish market with its pollution eating bicycles. In order to establish the suitability of the Poland market with this product, the company needs to evaluate the external business environment of this market. The external environment of the country was evaluated by conducting a PESTLE analysis. This report presents the results of the PESTLE analysis and recommendations for ABC Bicycle Company
regarding the market – PESTLE Analysis for Air Pollution Eating Bikes in Poland. The report is limited to the Political, Economic, Social and Environmental factors and does not include the Technological and Legal factors.

Search Results Web results PESTLE Analysis for Air Pollution Eating Bikes in Poland

Political Factors

Poland has a stable government and a stable political environment and is governed by the rule of law (Radio Poland, 2018). Recently, there has been growing concern that the country is experiencing declines in democratic freedoms. However, the country has a functioning judiciary and strong institutions. Corporate tax in Poland is 19% although start-ups (businesses in their first year of paying corporate tax) and small businesses (those that did not achieve a turnover more 1.2 million euros in the previous year) are taxed at the rate of 15% (Price Waterhouse Coopers 2018). The lower tax paid by start-ups and small businesses serves to promote entrepreneurship as well as increase chances of business survival and success. The Polish government has no special policies governing cycling or the bicycle industry although it appreciates the riding culture in the country and is taking measures to improve cycling infrastructures in some cities and towns (Rigitano, 2015).

Economic Factors

Bicycle Sales

According to Mayne et al. (2016) Romania, France, Sweden, Germany and Poland have been experiencing a rise in bicycle sales since 2012. Of these countries, Poland experienced the highest (20%) increase in bicycle sales between 2012 and 2015 as can be seen from figure 1 (Mayne et al., 2016). In 2010, Poland’s bike sales stood at 750,000, sales exceeding the country’s manufacturing capacity (Utkin, 2016). Read more …

Alternative link …

 

PESTLE Analysis for Parcel Delivery Using Drones

PESTLE Analysis for Parcel Delivery Using Drones in the UK Market

1.0 Introduction
SFS Express is a Chinese company that provides logistics and parcel delivery
services. Having witnessed a lot of success in the Chinese market with its parcel delivery services that relies on drones to make last mile deliveries, the company intends to expand by venturing into the UK market. Being a foreign market, SFS Express needs to understand the external business environment of the UK and its suitability for parcel delivery and courier services using drones. This report presents a PESTLE analysis of the courier and parcel delivery service market as applies to the UK.

2.0 Political
A stable political environment is important for business and provides a conducive environment for economic activities. The United Kingdom is a peaceful country with a stable political environment. The country’s postal and courier industry is liberalized so that any interested person can easily enter the industry (Brown and Conway 2017). The industry is widely unregulated, a factor that has led to the poor services by some industry players (Tims 2014). Operators may, for example, provide postal and courier
services without a license or without prior authorization from Ofcom, the industry regulator (Brown and Conway 2017). Although the industry generally remains widely unregulated, shipping products to and from international destinations outside the European Union requires custom clearance and is highly regulated (Parcel Hero
2015). Several legal hurdles make international shipping both expensive and difficult, which has rendered international shipping unattractive for relatively small firms (UK Government 2017). While the liberation and limited regulation of the parcels industry makes it easy for businesses to venture into the industry, it also gives room for the entry of many players in the industry, which potentially makes the industry highly competitive.

The courier and parcel delivery market in the UK is taxed the same way as other industries. While corporate tax has been set at 19% since 2017, this rate is set to be reduced to 18% as from April, 2020 (with a possible further reduction to 17%) (HM Revenue and Customs 2018). Continue …

Alternative link …. 

PESTLE Analysis for Parcel Delivery Using Drones

Segmentation Targeting and Positioning Volkswagen

segmentation targeting and positioning strategy exampleThis article presents a segmentation targeting and positioning strategy example.  It also presents a segmenting targeting positioning example. It discusses market segmentation of cars and stp model marketing example, and is related to market segmentation for car industry, automotive market segments, automotive market segmentation, and marketing stp. It attempts to answer the question how do car companies segment their market? Article preview: 

Segmentation, Targeting and Positioning by Volkswagen

Introduction

Many successful companies across the world apply segmentation, targeting and positioning (STP) as part of their marketing strategies. Volkswagen (VW), a company that makes cars is one of the successful companies that apply STP. Established in 1937, the company manufactures several car brands including Audi, Seat, Lamborghini, Skoda, Porshe, Scania, Man, Bentley, Bugatti, and Volkswagen (Volkswgen, 2018a; Bhasin, 2017; Volkswagen, 2018b). While its headquarter is in Wolfburg, Germany, the company has several branches and plants spread out in different parts of the world. This enables it to meet the needs of its global clientele, with the help of a robust distribution network. This paper briefly discusses segmentation and targeting before focusing on how Volkswagen has segmented its market, its target markets (segments), and how the brand is positioned.

Related Article: Market Segmentation, Targeting & Positioning (STP) with Company Examples

Segmentation and Targeting

Market segmentation, according to William Stanton, is the process of dividing the heterogeneous market for a product into several sub-markets or segments, each of which tends to display homogeneity in all important aspects (Rudani, 2010; Tabavar n.d., p. 63).  Philip Kotler, on the other hand, defines segmentation as the process of dividing a market into discrete groups of buyers based on factors such as needs or characteristics, behaviour, marketing mixes, or who might require different products (Rudani, 2010). A company’s market can be partitioned or divided based on different factors. Some of the bases commonly applied in segmenting a market are demographic characteristics (such as age, gender, religion, income levels, family size), behavioural characteristics (such as brand loyalty status, usage rates/consumption levels, benefits sought by the buyer, response to a product, and occupation), geographic characteristics (such as geographic location, cultural preferences, language, population type and density (urban, rural, exurban, suburban), time zone, and climate/season, and psychographic characteristics (such as values, beliefs, interests, attitudes, lifestyles, personality traits, social status). 

Targeting, according to Bihani (2004), is the process of evaluating how attractive market segments are and choosing the segment(s) to enter. It involves making choices taking into consideration available and necessary resources. Firms have a number of options with regard to the targeting strategy to apply. The main targeting strategies that companies can apply are mass marketing, niche marketing, segmented marketing, and micromarketing (Strydom, 2005; Kotler et al., 2015).

Segmentation and Targeting by Volkswagen

Volkswagen applies segmented marketing and has its market partitioned based on a mix of psychographic, demographic, geographic, and behavioural factors to meet the specific needs of different groups of customers. The following section discusses Volkswagen’s market segmentation based on these factors/bases.

Psychographic segmentation involves partitioning a market based on customers’ values, beliefs, interests, attitudes, lifestyles, personality traits, social status, or other psychographic factors. Volkswagen has partitioned its market based on customers’ interests and lifestyles. In this regard, some of the segments the company targets include consumers who simply need mobility, enthusiasts and consumers who need comfort. 

The compact or small cars that VW manufactures such as the beetle, polo, and golf are aimed at catering to the needs of consumers who simply need mobility or who simply wish to enjoy the utility value of a car … The cars targeted at these consumers are simple in design, …, and are cheaper to buy and maintain. …

Positioning of Volkswagen/ Volkswagen Brand Positioning

Market positioning, according to Wilkinson (2013), is the process of establishing the identity or image of a product or brand so that it is perceived in a certain way by consumers.With regard to positioning, Volkswagen takes pride in being a leader in … and to this extent uses the
tagline “….”. … Volkswagen mostly positions itself as … that produces … vehicles which attrac
t … compared to most car brands with more or less similar specifications. Whichever place the Volkswagen car is marketed, it is positioned as a vehicle that promises … 

Conclusion

Volkswagen segments its market based on a mix of psychographic, … factors to meet the specific needs of different groups of customers. With respect to psychographic segmentation, the company has segmented its market based on customers’ interests, … and lifestyles. …. The company applies … given that it has segmented its market based on how consumers intend to use vehicles. There are consumers who need vehicles for … use while others need them for …. use. Going by …., Volkswagen positions itself as a …. brand that produces … efficient vehicles.   Read the entire paper …

Alternative download link … 

Related article: Market Segmentation, Targeting & Positioning (STP) with Company Examples

Outline
Introduction
Segmentation and Targeting
 – Segmentation and Targeting by Volkswagen
       – Psychographic Segmentation
       – Demographic Segmentation
       – Geographic Segmentation
       – Behavioural Segmentation
– Positioning of Volkswagen
– Conclusion
– References

Segmentation, Targeting and Positioning by Volkswagen

 

Essential SSL
Open chat
1
Need help?
Hello, can we help you?