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The Appropriate Pricing Strategy

Paper Type: Free Essay Subject: Marketing
Wordcount: 3067 words Published: 24th Apr 2017

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Following in the footsteps of on-screen shoe addicts, such as Carrie Bradshaw, Britains love affair with shoes has continued to gather pace. Love and interest for shoes has never seen its decline in Britain. A careful research by MINTEL has shown that Spending on footwear (including VAT) has risen by 38% since 2001 alone, to reach just over £6.5 billion this year. Above all, the market is expected to see a constant growth in sales by 17% between 2006 and 2010 making it £7.6 billion.

It has been noticed that footwear interest has always been remarkably conscious in the UK that as never seen any decline in the world of fashion.

Fashion retailers have always highlighted the need of fashionable foot wears as fast as the clothing taken on board the need for fast fashion in footwear just as we have seen in clothing. Footwear specialists are always found active to meet the desires of ever new and different styles in shoes.

Despite the fact the shoe industry has never faced any decline in the demand and the growing need for the world of fashion, Producers like Nike need to make a careful observation of the environment which may influence marketing and its sale. Environmental factors can be classified trough PESTEL framework. Changes in government and polices can affect consumers’ confidence in the future, their spending power or their rights. The political environment affects the economic environment of businesses. Legislators at the local, state and federal levels may provide incentives or tax breaks to companies or they can impose regulations that restrict business transactions.

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Nike is very popular in Indonesia for it’s out source production, Nike is known as big offender and accused of child labor issues, and past it faced a big campaign by us students. At the moment Indonesia is the Nikes biggest production center, with 17 footwear factories that employ 90,000 workers and produce about 7 million pairs of shoes each month.

The settlement suggests that Nike, although still struggling to improve its labour practices and that of its contractors, is trying to upkeep its position by attending the issues of mistreated factory workers – and before some serious campaign pose it a threat towards its repute and sale, the policies need to be changed or the different approach of dealing with the situations needs to be introduced.

Now, economic growth, inflation, interest rate, exchange rate and the customers’ attitude towards saving ,altogether contribute to economic factors.

Decline in economic growth in the UK may affect the Nike’s sales targets. And the UK economy may face a bad jab of recession as household continues to cut back. After official figures in January showed that the economy may drop by 0.2% in the last three months of 2011, the UK is already feared to meet another recession which is known as consecutive quarters of economic contraction. It fears the economy mar fall to 0.1% in 2012, but may rise 2.3% in 2013 if there is no euro zone debt crisis.

Moreover, socio-cultural factors also contribute to the business progress. As UK allows multitude of cultural variations, Nike appears as one among them.

Social trends affect business to a great deal are one of the key factors affecting a business. Consumer buying patterns are influenced and designed by the running trends, so new fashion determines their desires and demands. It necessitates the need for the NIKE to consider and understand the cultural environment influenced by the society’s basic values, perception, preferences, and behaviors which directly affect the sale of the products Nike targets the achievement and victory over the social values of the customers.

In addition, technology may affect the sale of the new products as there are being introduced the multiple ways of marketing and sales in the market. So the organization needs to keep abreast with such changes to appear as one of the competitive in the market.

It is beyond any doubt that technology has always shown remarkable effects on life style and fashion. So each company in the market tries to take technological advances to be a good competitor.

the research team; under Nike’s head and its supervision has been in constant struggle for almost 16 years visualizing, researching, developing and trying to put the possibility of attaching springs to the sole of an athlete’s foot into reality. Nike Shox, the most acclaimed and ever wished technological development makes the dream a reality (“Nike”). Therefore, by advancing in technology, Nike holds a competitive edge in the market. Moreover, Nike has also acquired the leading position in the market by being the first market with its e-commerce web site. It offers online purchasing opportunities, a complete description of its product lines and display, locations of the different stores, and many more features making it accessible in every possible way. NIKEID invites its customers for their opinions and suggestion on the purchase they make .this is just to allow an easy flow of information and close contact with its customers. This method helps the employees reduce time and while getting information about their company’s products anywhere. Such efforts of Nike have helped it to increase more than 40% of their global sales.

Still Nike is aware of the fact that to maintain stability in the market it always requires considering and reconsidering their strength, weaknesses opportunities and threats to achieve their sale and proposed targets.

In industrialized and developed countries market segmentation is considered as the vital part of the marketing. Productions of the goods depend on the needs and demand of the customers, so variety in needs triggers the variety of production.

“As smith, (1956) recognizes that segments are directly derived from the heterogeneity of customers wants. He also emperies that market segments arise from managers’ conceptualization of a structured and partitioned market, rather than the empirical partitioning of the market on the basis of collected data on customer characteristics.”

(Market Segmentation: Conceptual and Methodological Foundations by Michel Wedel, Wagner Antonio Kamakura)

Market segmentation is categorized into four bases:

Geographic segmentation: Geographic segmentation is based on the consideration of a place. In other words this segmentation is based on size of the area i.e. city size, and climatic requirements. Geographical segmentation ensures the expansion of the business in a pre planned territory.

Demographic segmentation: Demographic segmentation is undertaken on the basis of age, family size, income or education etc.

Psychographic segmentation: psychographic segmentation is based on customers’ assessment of the customers’ psychological approach. It considers values, attitudes, lifestyle, personality etc.

Behavioral segmentation: Behavioral segmentation explains about the targeted benefits through user’s interest, loyalty, status and attitude towards the product. Market segmentation ensures the achievement of the target based on well planned marketing approach. It shows that the business is not being launched by leaping in the dark. In fact marketing strategy is devised after market segmentation.

Segmentation is defined as the analytical method to increase the focus of targeting on market segments. The better one focuses the wider he gets the profit. If you have better focus, obviously you will have better returns. Segmentation ensures the Customer association and loyalty can be promoted through the life cycle of a customer. Promotion or communication is one of the factors of marketing mix which totally relies on STP. The communication and correspondence should be targeted on the company’s needs. And this communication can accelerate competence, brand recall, equity and customer’s retention. This also ensures the profitability at the best possible lowest expenses.

Surprisingly a considerable number of Nike’s customers are with sportive interests. Being an expert at segmentation, Nike specifically targets athletes aged 15-35 without the distinction of male or female.. Nike experiences on the innovation of the products, brand leadership and an elevated retail presence. Nike establishes its relation through targeting on the agreement between athletic teams sponsored by some authorities and by introducing sponsorship to the members of these teams. This venture on Nike’s part opens the door for the other athletes and sports group creating a sense of competition in product as well as in sport.

Though, after Olympics this graph of sports’ or athletes’ interest has dropped down to some extent, so it is the time for the Nike to introduce something different especially in the UK market that could restore the customers interests and attraction. at this point demographic segment is to be more focused through an operation on launching a new footwear for the customers aged 15 to 28.A s this group always follows the fashion and modern trend, it will restore the sale’s falling graph. Moreover this group is more prone to show its association to the brand, so Nike can take advantage of this interest to promote its business.

Price formulation is one of the important strategic issues as it is related to the products positioning. For the formulation of the price strategy, it is necessary to analyze the market first, segmentation, and the positioning of the products. Moreover, making marketing mix decisions, estimating the demand curve, calculating the cost, understand the environmental factors and setting the pricing objective are the necessary steps which form the basic information.

Having targeted the different segments of the market Nike is targeting the variety of the segments of the market. Nike should follow and adopt a different strategy for the price formulation. In general practice, Nike makes its customers its first concern, especially the customers who are more alive to the quality and utility of the product than the price. Subsequently the customers who consider a product to be high quality are willing to pay the high price for the standard. This makes them develop the product intimacy and association and they hardly bother about the price.

Nikes give importance to the leadership strategy and the price based on value. To make their brand of top quality and range, Nike spends a massive amount which ensures its promotion and progress. Customers are always found willing to buy after the brand name when it has established its repute. However the pricing is based on the basis of premium segments as target customers. Consequently, being a well known brand, Nikes demands high premium.

An impressive and elegant pair of Nike shoes grabs about GBP45 to GBP 95.But hardly ever knows that this cost includes the expenditures of material, machinery, rental and making.

On making one pair of shoe Nike almost spends GBP8 out of which GBP 1.8 goes to labor and 4 % is paid by the customer with a check sign. Obviously the labor cost is really low.

In short, one pair production cost is a, Nikes out GBP8 including shipping duty, making and suppliers operating profit. The cost of production is almost GBP 08 per shoes. Then GBP 10 is retailers’ cost which involves research and development, promotion, and advertising sales, distribution, admin and Nikes operating profit.

Cost for customer then may start from GBP 55|60. Because of the brand recognition, customers always think it reasonable. Nike wants to maximize its profit by starching his brand price which, in fact, after Olympic seems hard as there seems hardly any possibility in the UK market.

Appropriate pricing strategy:

Keeping in view the research on pricing, it is suggested that Nike should try to penetrate by introducing new casual footwear comparatively at lower prices. This step will subsequently stimulate the growth of market claiming its large share.

The step of introducing low price will discourage the competitors and will set a difficult situation for them. As a result the Nike’s product will successfully grab the customers especially the teenagers.

Penetration pricing strategy appears the most successful device to create an intimacy between the customer and brand. This helps the product spread within a short time. More over the product diffuses instantly attracting their interest for the purchase

Penetration pricing strategy in fact, aims at compelling the customers to change their bend for buying and switching to the desired product. This strategy no doubt does not promise high profit but it does benefit the company in terms of its brand penetration and recognition and having a long term market share.

So, Nike with this pricing strategy can ensure the desired promotion of the business by focusing on minimizing unit cost from the initial stages.

This strategy moreover discourages the others competitors who, as a result stay reluctant and don’t put their new business at risk appearing in the market as competitors.

Marketing is most suitably defined as the concept of designing, planning and putting the concept of pricing into practice along with the exploitation of ideas, goods and services. Nike has not only been successful in catering quality products which have earned customers trust and loyalty, but also has been proud to employ the superb promotional strategies. Moreover, wisely enough Nike has corresponded some professionals and athletes which could be really very instrumental in drawing the customers attention to the newly launched products. This effort includes soccer stars such as Ronaldinho, Renaldo and Roberto Carlos, Basketball players such as Jermaine O’Neal and Lebron James2, triathlete Lance Armstrong and golf superstar Tiger Woods.

This strategy proved a really productive effort as it has helped introduce and promote the desired products on a wide range. Moreover, through mass media as well, Nike has invested valuable efforts on advertisements.

There are different and multitude of promotional techniques aiming at the progress and success of the business namely:

Advertising,

Public relations,

Sales promotions,

Personal selling’s,

Direct sale and internet marketing

Nike after a careful observation adopts the market penetration strategy. They ,it focuses the young generation which needs not rely on advertisement and any source to know about the new trends as they themselves are always alive to the innovation and modernity. This strategy save Nike a considerable amount which otherwise may incur high expenditures. A report showed that Nike’s income graph fell 12% because of its high expenditures on advertisement and its actual making cost. In short, the sharp decline after Wall Street closed was $645 million in the years early period

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. Revenue rose 10% to $6.67 billion from $6.08 billion a year earlier. Revenue in emerging markets rose 8% to $867 million. As the company’s expenses outraged heavily during Olympics ,administrative expenses touched 18% .future delivery orders from 2012 to 2013 rose 6% to 8.9% billion from previous year. Though, the future orders have increased by 16% during the first quarter last year. It is expected that the present opinion about the firm hold of the company in the market will show its stability.

Furthermore, there are push and pull strategies which are applied to uplift the business in the market.

Push selling strategy:

This technique is applied by the company to incite consumers to make demands for the sale’s products. Basically it forces the customers to buy the products on sales and discount. This technique pushes the customers to make buying decisions. So, pushing strategy is a technique that makes use of a company’s sales force and trade promotion activities to create consumer demand for a product like discount, different offers. The producer pushes the wholesaler, who in response in his promotion effort, introduces it to the retailers and retailers offer it the consumers.

Pull selling strategy In “pull” selling strategy a lot to attract the consumers. Its success depends on massive spending on advertisement which could compel the customers through its effective campaign on promotion. This resultantly encourages consumers to demand the retailers, retailers on their part demand wholesalers and wholesalers make demands on producers.

Nike, through market penetration strategy, should apply push selling strategy by offering discounts on different products, like casual shoes which can be used for short period for sake of change Moreover Nike. Should penetrate into the choices of customers through Face book, twitter, direct marketing, sales promotion and blippar for the promotion of the product; because research shows that use of these Medias’ is more popular than TV or Newspaper among the young people. Furthermore, seasonal introduction through seminars and displays through modeling session will help us uplift its sale and consumers attraction.

Through Customer adoption producer judges the consumers approach and behavior towards their decision of purchase. Some customers appear as innovators as they always like to be the first in fashion to lead others. Then there are some consumers who emerge as early adopters showing their instant response towards the new product in the market. Then there is early majority, late majority and laggards who learn through others experience and then adopt the products.

However Nike should adopt such a policy which should captivate early or late majority altogether effectively. Blippar can be adopted as it is a good example of instrumental advertisement; being subliminal it creates the awareness in customers from cognitive to conative stage. Moreover, this type of advertisement ensures the least expenditures for the maximum profit in return.

 

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