Case Analysis : Management 208 Cherie Lou C. Dy/Allen Glennie P. Lambert BEA’S PRICING DILEMA
I.
POINT OF VIEW
The point of Marketing Assistant of Prime meat, Inc. is the one to be taken since
she is the one making for the revisions in the the marketing strategies of Prime
meat
products.
Ms. Bea Lim, the Marketing Assistant of Prime Meat, Inc. is planning to make some revisions in the marketing strategies for Prime Meat products. The The Exec Execut utive ivess of the the compa company ny want want to crea create te a bett better er imag imagee for for their their products products considering considering their their acceptabili acceptability ty in the market. market.
Mr. Jay de los Reyes, the Marketing Manager has commented that current prices prices are lower than similar similar products products in the market, market, this he considers considers as a barrier barrier to better better image building. building. Bea, does not fully agree that prices are the only only basis basis for creating creating product product image. image.
She still still believe believess that since since their
company is still small and growing, current prices must be maintained to attract a bigger market. However, she considers Mr. Mr. Jay’s comments a useful input input in pricing pricing strategy strategy formul formulatio ation. n.
She is contemp contemplat lating ing on a pricing pricing
policy that would would have a long-ter long-term m beneficial beneficial effect effect to the company company..
II.
MARKET SITUATION ANALYSIS
Prime Meat, Inc. is a spin-off from the big feed milling business of the LCM company. The LCM Company is located in Lipa City, the capital city of Batangas.
This is located about 85 km away from Manila.
The city is
considered a first class city.
The meat division was separated from the mother company to give it more independence in formulating strategies and to enable it to grow as a distinct strategic business unit. With the separation from the LCM Company, they are also planning to transfer to a larger plant with a 30 metric ton production capacity per month in Santo Tomas, the town next to the capital city.
Strengths •
The separation of the meat division from its mother company gave them independence in formulating strategies
therefore enabling them to grow as a
distinct strategic business unit. •
They offer the best quality product that their AA accredited plant produce.
•
Their products are made from the best quality raw materials.
•
They have stand-up signs along high ways, streamers and banderitas.
•
In addition, they have radio advertisements and just recently, they shot a TV commercial which is now being televised at ABS-CBN Regional Network Batangas TV 10.
•
They have regular dealers and walk-in dealers who sell their products in their respective areas.
Weaknesses •
Other products of Prime Meat, Inc. including Christmas ham, embutido, bologna bacon and sweet ham are considered seasonal with only a small share in the total sales.
•
Despite the opportunity of producing a great number of processed meats, their capacity is only 30 metric tons per month. 2
•
Prime meat can handle only a very small percentage of the potential market.
•
The current company’s market share is only 2.17%.
Opportunities
•
LCM Company is Located in Lipa City, the capital city of Batangas which is just
85 kilometers away from Manila. •
The city is considered a first class city thus giving them the chance to increase their
prices. •
Due to the meat division’s separation from the parent company, they were enabled
of transferring to a larger plant with a 30 metric ton of production capacity per month in Sto. Tomas, the town next to the capital city. •
In Lipa City alone the market potential for tocino is 89.312 metric tons per month
while for hotdogs, the total estimated market potential is 95.14 metrc tons per month. This implies that there is a big demand for hotdogs and tocino.
Threats •
They have a lot of competitors who are offering the same products at lower prices.
•
Among the brand of hotdogs in the market, Prime Meat is not considered as favorite among customers.
Product Life Cycle
There plan to transfer to a larger plant indicates that there products are accepted by the market and their profits are increasing. Thus, Prime Meat’s products are in the growth stage.
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Target Markets
Class B to class C income levels group of customers are the company’s target market.
Product Positioning
Prime Meat, Inc. positions its product as a low price, high quality product made from the best quality raw materials.
Current Marketing Mix:
Product
Prime Meat, Inc. offers the best quality products produced by their AA accredited plant. They aim to provide their consumers with the best quality processed meats. These processed meats are made from the best quality raw materials straight from the members hog produced and flavored with imported spices to enhance the taste.
All of their processed meat products are packed in polyethylene in plastic bags bearing the Prime Inc. logo, product type, ingredients, and best before date of a product.
Pricing
Prime Meat Inc. uses mark-up pricing in determining the price for their product. They implement a 15% mark-up policy for all their products. Raw materials,
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packaging, labor and overhead are taken in consideration in cost calculations. Their suggested retail price for a 250 gram tocino is Php 30.50.
Promotion
Prime Meat, Inc. does several promotional pricing strategies in marketing their products. They have a discount of 2.5% of the members of the LCM cooperative, regardless of the volume of the products. Other buyers can avail of pick-up subsidy for a minimum of 35 kilos at Php 3.00 per kilo of volume discounts ranging 6%.They put up stand -up signs along high ways, streamers, and develop a billbord that has been recently put up along South Luzon Moreover, they shot a TV commercial at ABS-CBN Regional 10.
Table 2 Discounts Given by Prime Meat, Inc TYPE Cash Discount (regardless of volume) Pick up subsidy (one time pick-up of a
DISCOUNT GIVEN 2.5% P 3.00 /kg
minimum of 35 kgs Volume Discounts: 35-50 kgs 51-100 kgs 101-200 kgs Over 200 kgs
3% 4% 5% 6% plus P2.00/kg
Place and Distribution
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from
3-
banderitas. They also Expressway. Network Batangas TV
The company distributes its product through LCM branches in CLABARZON, Mindoro and parts of Central Luzon. They also have dealers who sell their products in their respective areas. Prime Meat, Inc. has a total number of 23 outlets distributed as follows:
Batangas
9
Laguna
3
Quezonn
6
Bulacan
1
Rizal
1
Mindoro
1
Cavite
1
Camarines Norte 1
III. THE CASE PROBLEM
What pricing strategy that would have a long-term beneficial effect to the company should Prime Meat, Inc. employ?
What would be the pricing policy that will have a long-term beneficial effect to the company?
IV CASE OBJECTIVE
To come up with an effective pricing strategy that would give long- term to the Prime Meat, Inc.
V ALTERNATIVE SOLUTIONS TO THE PROBLEM
A. Current prices should be maintained. •
Con. Product image will remain stationary.
B. Cut prices in the hope of gaining market share through larger volume. •
Pro. Affordability of the products will increase.
•
Con. The product will be perceived at low quality.
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C. Increase the market prices of Prime Meat’s products relative to the perceived value of the consumers.
•
Pro. Their products will be perceived as high quality, thus; creating a
better product image. Subsequently, a good product image will greatly help in improving sales. •
Con. Price-sensitive customers might shift to other brands.
Bea conducted a store check to determine prices of competing products in the market.
The Store check was conducted in five supermarkets in Lipa City; three
smaller stores that carry competing brands and in the Lipa City Public market. The store check revealed the following results. Bea gathered that among the consumers, the favorite brand of tocino is Pampanga’s Best followed by Prime Meat. The favorite brand of hotdogs is Purefoods Tender Juicy followed by Swift Hotdogs.
Bea also determined the rating of the brands and found out that Lipeno’s Pride was considered to be the best brand in terms of the important tocino attributes.
The
summary results is as follows:
Table 5 Summary Table for Brand Rating for Tocino Brand Taste Prime Meat Purefoods Best Emma L. Pride Mekeni Carmen
4.6 4.8 4.9 4.8 4.0 4.25
Tenderness 4.0 4.3 4.0 4.4 4.0 3.75
Color 4.1 4.1 3.7 4.4 3.0 3.5
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Mean Flavor
Ratings Nutritive
4.1 4.4 3.3 4.8 4.0 3.75
Value 3.4 3.8 3.0 3.6 2.0 3.0
Packaging
Weighted
4.0 4.3 3.4 4.2 4.0 2.5
Rating 4.13 4.4 3.92 4.48 3.75 3.63
Table 6: Summary Table for Brand Rating of Hotdogs
Brand Taste Purefoods Swift Moby CDO
4.93 4.33 4.50 4.00 Legend:
Tenderness 4.80 3.78 4.00 4.00
Color 4.66 3.56 3.50 3.50
Mean Flavor
Ratings Nutritive
4.80 3.89 4.00 3.50
Value 4.51 3.67 3.50 3.50
Packaging
Weighted
4.76 6.67 4.00 3.00
Rating 4.74 3.82 3.92 3.58
5 – like very much 4 – like 3 – indifferent 2 – dislike 1 – dislike very much
Prime Meat hotdog was not included in the summary of brand ratings for hotdogs because the consumers do not consider this as a favorite hotdog brand.
VI RECOMMENDATION
After weighing the advantage and disadvantage of each alternative. We recommend alternative C—increase the market prices of Prime Meat’s products relative in the perceived value of the consumers. Beas’ research indicates that twenty-four percent (24%) of respondents favored thirty two pesos (Php 32.00) as the amount that would be willing to pay for a 250- gram pack of Prime Meat Tocino. This price is higher compared to Prime Meat Tocino’s current market price of its 250 gram pack, which is thirty pesos and fifty centavos (Php 30.50). We propose that the new suggested retail price for a 250- gram pack tocino be increase to thirty one pesos and fifty centavos (Php 31.50). For hotdogs, thirty seven percent (37%) of the respondents choose thirty seven pesos (Php 37.00) as the amount that they would be willing to pay for a 250 -gram pack of
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Prime Meat Hotdogs. This price of hotdogs is also higher than the price of current Prime Meat Hotdog-Premium, which is thirty pesos and forty-five centavos (Php 30.45). I recommend that the price of Prime Meat Hotdog be increased to Php 35.95. Prime Meat products are of high quality, therefore; We can say that our recommended price increase is justifiable. This action will answer the objective of the top management of building a better product image can greatly help improve the sales and in the long run, improve Prime Meat’s market share. But prior to pricing the product, the company should focus first on improving the taste, especially for the hotdog, since it needs to be improve that will please the greater consumer. In addition, price also is not the only element of the marketing mix that should be considered in finding ways to achieve long- term beneficial effects of the company and its products. The other elements—product, price, place and promotion— should also be considered.
VII PROPOSED STRATEGIES OR PLANS
Price:
As stated in my recommendation, increase the market prices of the products based on the perceived value of the consumers P31.50 for tocino and P35.95 for the hotdogs.
Price Information
Bea learned that the consumers are familiar with the prices of the different tocino and hotdogs brands. Consumers have the tendency to compare prices and quality when buying tocino and hotdogs. The housewives are the main decision maker in buying tocino while children are powerful influencers in hotdog buying.
Price Expectation
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Bea conducted a taste test and product sampling to determine the price expectation of the consumers. The price of a product must be consumer-oriented and it is important t ensure that consumers are satisfied with what they get from the product relative to what they pay for it. A price expectation test was conducted to determine the preferred price of consumers for 250 gram packs of Prime Meat tocino and hotdogs. Respondents were asked to taste the products and were shown the packaging.
The cheapest tocino brand is priced at 27.50 per 250gram pack.
The most
expensive tocino is priced at P35.pp for the same size. Twenty four percent of the respondents favored 32.00 as the amount that they would be willing to pay for a 250 gram pack of Prime Meat Tocino.
Meanwhile, for hotdogs the price range for a 250gram pack is P22 – P45. Thirty seven percent of the respondents favored P37.00 as the amount that they would be willing to pay for a 250 gram pack of Prime Meat hotdogs.
Bea calculated that in Lipa City alone, the market potential for tocino is 89.312 metric tons per month while for hotdogs, the total estimated market potential is 95.14 metric tons per month. Prime Meat can hold only a very small percentage of the potential market. Bea estimated that the current company’s share in only 2.17%
Bea is hopeful that with the increasing popularity of Prime Meat , it can still capture a bigger market share. However, she is bothered by the presence of many competitors that are offering the same products at lower prices.
She is also bothered by the
objective of the top management of building better image through pricing.
Product :
Maintain the best quality of the processed meat products. However, the management should do something regarding the taste of the hotdogs because in the
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research it is not considered a consumer favorite. In line with the price increase we also recommend that the products’ packaging be improved.
Promotion:
Place numerous forms of advertisements in every outlet. Also give posters and banderitas to the dealers and ask them to place these posters in prominent areas of the stores so that the people can easily see them.
We also recommend that the Prime Meat should create a website to have a better connection with consumers. This action will promote better awareness about the product. Areas outside Batangas will also be informed about Prime Meat as a company offering high quality meat products.
Place and Distribution:
Add more outlets in order to capture a bigger market. Encourage more dealers and be sure to maintain a good relationship with them.
VIII FUTURE TRENDS
•
Health and wellness.
To respond the current trend of heath products, meat processing business will create products with healthy ingredients and a variety that is low- fat (“lite”).
•
Solid waste reduction.
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Companies will continually seek in finding ways to reduce solid waste generation, use less or reusable packaging products. •
Water Conservation and Wastewater reduction.
Water conservation will continue to be principal targets for pollution prevention practices in the processed meat industry. Water used is conveying materials, facility clean up, or other non-ingredient uses will be reduced. This in turn will reduce the wastewater volume from food-processing facilities. Wastewater treatment will also be focused to prevent pollution. The industry will continue to implement advanced innovative techniques to lessen the environmental impact of food-processing discharge wastewaters.
V.
CONTINGENCY PLANS
In case alternative C failed, alternative A, which is to maintain current price will be employed. Strategies to build a better product image and achieve a bigger market share will be done on other elements of the marketing mix.
VI.
MARKETING MANAGEMENT LESSONS
•
Price somehow builds the image of the product.
•
Low prices does not necessarily equate to low quality.
•
Price is not the only component of the marketing mix that could affect the product image.
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