MBA 501 MANAGEMENT AND MARKETING PRINCIPLES

PRICING STRATEGY ACTIVITY

1. Coke ran whole page advertisement in all major print and social media announcing a
five-peso price reduction (from P55 to P50 in the retail level) on their 1.5L size of Coke
and Sprite during the Christmas season until December 31, 2019. Their imported
Christmas TV advertisement also featured bullet messages running at the bottom of the
screen announcing the price decrease.
a. Why do you think a market leader like Coca-Cola would implement a price
reduction during peak season like Christmas?

ANSWER:
Along with using discounts to spur off-season demand, Coke probably consider applying
premium pricing schedules during peak demand. The money that can be made during
the peak season can compensate for the low demand and sales during the slow season.
Even small price cuts can have negative effects on offerings with thin margins, fatter
profit margins may give businesses more room for seasonal price cuts.

Another pricing strategy that Coke probably considered is the Market Segmentation. It is
knowing how many and which customers are likely to be influenced by price changes,
and which buyers will continue their seasonal purchasing patterns regardless of price,
may help Coke determine if seasonal pricing is right.

b. You are the Marketing Director of Pepsi. What would be your response assuming
that it will affect your sales volume? Identify your options and justify your final
choice.

ANSWER:
If I were the Marketing Director of Pepsi, the following would be my response assuming
there is an affect in our sales volume:

Maintaining price and profit margin, believing that (1) it would lose too much profit if it
reduced its price, (2) it would not lose much market share, and (3) it could regain
market share when necessary.
Maintaining price while adding value to its product, services, and communications. This
may be less expensive than cutting price and operating at a lower margin.
Reducing price to match the competitor's price, because (1) its costs fall with volume,
(2) it would lose market share in a price-sensitive market, and (3) it would be hard to
rebuild market share once it is lost, even though this will cut short-term profits.
Increasing price and improving quality by introducing a new product to bracket the
attacking brand.
Launching a low-price fighter line or creating a separate lower-price brand to combat
competition.
 The best response varies with the situation. As a Marketing Director of Pepsi who is
attacked by a lower-priced competition from Coke during Christmas season, I will
Maintain the price while adding value to the product, services, and communications.
This may be less expensive than cutting price and operating at a lower margin. By
making the prices the same as the competitor, consumers will be less inclined to move
from the brand (Pepsi), thus enabling the Company to maintain their market share.
Competitor price monitoring allows you to respond to every move your competitors
make, which can further help in the better positioning of the business.

2. Hotdog is the single best seller in the processed meat category. Ham, bacon, large
sausages, salami, and bologna are next in the bestseller list. Competing in the premium
segment of the market and brands are Swift and Purefoods. New players that recently
entered the market are brands like, Star, CDO, Yummy, Mekeni, others.

a. Assume that Oscar Mayer, a popular brand in the U.S., will be launched as the
latest brand of processed meats in the Philippines. If you are the Product Manager,
how will you formulate Oscar Mayer’s pricing strategy. Rationalize.

ANSWER:
If I am the Product Manager of Oscar Mayer’s, I will to formulate the following pricing
strategy:
Evaluate the competitors’ pricing policies. I will to evaluate competitor’s prices in each
potential export market. If there are many competitors within the foreign market, I will
match the market price or even underprice the product or service for the sake of
establishing a market share. If the product or service is new to a particular foreign
market, I might set a higher price than is feasible in the domestic market. However, it is
important to remember the several points when determining the product’s price:

 Determine the objective in the foreign market.

 Compute the actual cost of the export product.
 Compute the final consumer price.
 Evaluate market demand and competition.
 Consider modifying the product to reduce the export price.
 Include “non-market” costs, such as tariffs and customs fees.
 Exclude cost elements that provide no benefit to the export function, such as
domestic advertising.

b. You are the Product Manager of Purefoods hotdog, what would you do knowing
the entry of popular U.S. brand Oscar Mayer’s hotdog in the Philippines? Explain.

ANSWER:
Since Purefoods Hotdog is already known and is one of the leading brands of hotdogs
with its high-quality product, it can surely compete in global markets on the basis of
lowering its price for good value. This is to gain market share by reducing the prices. The
price reduction is intended to increase demand from customers who are judged to be
sensitive to changes in price.

As the product Manager of Purefoods hotdog, I will be using the price positioning
strategy of skimming. This strategy clearly positions the company above the rest, it tells
consumers something is special about your products. For example, Purefoods Tender
Juicy’s primary target market are kids and kids at heart who demand the meaty hotdogs
and cooked to a distinctly juicy texture in which kids can really tell the difference among
other brands, because of its taste, juiciness and tenderness. To skim, we can set prices
higher than the competition does in order to “skim off” customers who are willing to
pay more. This strategy can be highly profitable.