In this final module, we are studying the final 4p, price. In my analyzation of Kitchen Collection, I have gathered much information about their price strategy and price effectiveness compared to their competitors. Kitchen Collection opened in November 2005 in the Indiana Mall. The addition of this store can be beneficial to our community. Up until the opening of Kitchen Collection the customer base of Indiana did not have an outlet for the kitchen enthusiast. Kitchen Collection specializes in kitchen gadgets, small kitchen appliances, cooking and baking tools, and As Seen On TV items.
A frequently absent manager that has other obligations to now three stores, an assistant manager, Ms. Angela Visnick, and four employees run the store. What determines your inventories' prices? The prices of products are set by the corporate office. The store managers have very little to do with setting prices. They can make recommendation on product prices based on analyzation of sales. If a product is not selling well, they can recommend that the product be their displayed product of the week according to the assistant manager, Ms. Visnick (Visnick 2006).
According to Ms. Visnick when a product is the "product of the week" it is displayed in the front window, literature is provided, and the featured product is usually on sale. She can also suggest that the product be discontinued from the store inventory. Is this the best way to set prices? After careful review of Kitchen Collection and their competitors, I have found this is the way many business set product pricing. New products and existing products are generally sent down from the company's corporate office and distributed to the stores.
I, myself, feel that there is a better way to set prices. Every region in the world has different wants and needs and these wants and needs generally reflect what a customer is willing to pay for the product. If you live in a desert, you will pay a higher price for water then someone who lives by a lake. It is the philosophy of supply and demand. Careful analyzation of your market segment that you are targeting needs to be determined in setting your product's price. If your market has a higher demand for water and a low supply of water then your bottled water needs to be priced higher.
If your market has a low demand for water and a high supply of water then your bottled water needs to be priced lower. Your price is based on your potential markets' supply and demand curve. The CCH Business Owner's Toolkit pricing guide states the steps to set prices should be as follows (CCH 2006): 1. Analyze the size and composition of your target market. 2. Research price elasticity for your product. 3. Evaluate your product's uniqueness. 4. Select your channels of distribution. 5. Consider product life cycles. 6. Analyze your costs and overhead. 7. Estimate sales at different prices.
Consider secondary pricing strategies. 9. Select final pricing levels. What would be the likely response of demand to higher or lower prices? Every time a product's price is raised or lower you affect your customer's demand for the product. With Kitchen Collection, the changing of a product's price is going to have a severe effect on their profitability objective. Kitchen Collection's motto of "better brands at better prices," promises customers lower prices than the competitions. Price represents the value of a product among potential purchases (Allen 1999).
Kitchen Collection's furthered success strives on the point of being able to provide better prices then their competitions to be able to cement a place in this market. Their prices are not that much better but the variety of products they provide in one central location makes it better for customers. Elesticity of Demand If prices were raised, Kitchen Collection would no longer have a significant competitive advantage against their competitors. They would no longer offer the customer a value and lose the utility that they provide to their potential market segment.
The demand for the product would decline causing a disturbance in their demand/supply curve. This also affects your elasticity of demand. As your prices go up, the demand for your product lowers. As your prices decrease the demand for the product increases. At a point of lowering your prices you then have to make sure, you analyze your break-even point. Break-Even Analysis If prices decrease too rapidly, Kitchen Collection could possibly lose money on their products instead of reaping a profit. In addition, if the price were lower then the break-even point then Kitchen Collection would actually lose money.
Prices can influence a business if either method of changing prices is used, the ultimate goal of a business is to find the correct price that will gain the highest profit and supply the customer with the highest value and utility. Does Kitchen Collection use temporary price promotions and, if so, how effective are they? Kitchen Collection does use temporary price promotions effectively, now. At the beginning of this marketing audit price promotions were being neglected. Sale signs were not posted during the sale. The assistant manager's position was that the customer received a surprise at the cash register.
After careful discussion on the importance of making customers aware of the sales and the impact of sales on customers' buying behaviors, signs are now displayed prior to the sale beginning. Kitchen Collection uses sales, clearance items, and percentage discounts to target potential customers. My favorite example of this is the example of Ms. Visnick's percentages off specials. If a pregnant mother came in on a Tuesday, brought a picture of her mother with her, was also a college student, and was a family member of a store employee it is possible for her to receive four different percentage off promotions (Visnick 2006).
On Tuesday all pregnant women receive 20% off any purchase, also on a weekday anyone showing a picture of their mother receives an additional 5% off, a college student with ID receives 10% off any purchase, and finally a family member of an employee receives 20% off any purchase. Using the example above, if the above referenced woman bought a product for $35. 99 she would end up paying $19. 69 for her product a gross savings of $16. 30.
