2013 Question 7 (C)

Read the information supplied and answer the questions which follow.

An Irish company, All-Weather Wellies Ltd identified a niche market for colourful wellington boots of all sizes. The wellington boots are sold mainly online to people who enjoy the ‘great outdoors’ and festival-goers. The company wishes to expand and add accessories, such as umbrellas, scarves and hats to the product range.

Outline the factors a marketing manager might consider in determining the selling price of products at All-Weather Wellies Ltd. (20 marks) [Marking scheme: 4 x 5 marks (2 + 3)]

1. Cost of the product:

The price should cover the firm’s costs (production, marketing, distribution etc) and include a profit margin; this is the break-even price of the product. This price is the minimum the business must charge for the product, or else it is making a loss.

All-Weather Wellies Ltd could perform a breakeven analysis in order to determine the point at which the business’s costs and revenue must meet.

2. Competitors’ prices:

Competition is very intense amongst competitors in an industry, and the price your competitor charges will influence the price you set your product at.

The pricing plateau for the product is a strong consideration, however. All Weather-Wellies Ltd’could opt for a low pricing strategy such as ‘penetration pricing’ in order to capture market share from competitors.

3. Consumers:

The amount a business charges is determined by how much its customers can afford to pay for it. The business must know the target customers’ price range and set the price of their good/service within this range. The target market may be a determining factor on the final price chosen for the product.

The type of buyer will determine the price that can be charged. The business may use a price discrimination strategy to discriminate between the festival-goers and the great outdoors in the price setting process.

4. Stage of product life cycle: -

If the product is new to the market and it is at the introductory stage, a high price may be charged to help recover the R&D costs of the product.

As All-Weather Wellies Ltd is selling branded boots, the business could use a premium pricing strategy to set a high rate price in order to reflect consumers’ perception a superior product.