Unit 2 Research Proposal British Gas Pricing Strategy-Btechnd

Literature Review

Market Analysis

market for fuel and gas is entire world with every country having different type of needs and levels depending upon their population’ industrial development’ weather conditions and domestic production. Majority of countries are dependent on imports to sustain their energy requirements. There is a gap in demand and supply of the products by domestic purposes in all countries except oil producing countries. These producing countries have economies based on their oil producing business. Most of the oil producing countries is members of association of oil producing countries like OPEC etc. To maintain a healthy price in the market these association determines the level of production to be undertaken so that prices do not fall beyond a certain level (Barker et al., 2000) there are various other factors also which impacts the international crude oil prices like overall economic scenario of the world (growth phase or recessive phase)’ demands from other countries’ usage of alternative and renewable source of energy ( solar power’ wind energy etc)’ increased demand for heating fuel in cold weather conditions’ demand from developing countries’ discovery of new oil fields and their commissioning etc.

International prices are currently hovering in the range of (100 dollars to110 dollars per barrel of crude oil) with fluctuations depending on the market forces. The future market for crude oil is also giving signals of down trend in oil prices. Most recognized and traded international oil markets are New York mercantile ‘London crude’ Brent crude etc. The other markets for oil trading take cues from these markets in determining their prices. In last couple of decades the prices for crude oil has increased many folds and their demand has also grown exponentially. Market researchers claims that main reason for increase in the prices and demand are increasing level of globalization and industrialization’ a very high demand from developing economies which are consuming high amount of fuel for  fulfilling their energy needs and power generation’ increased lavish life style with frequent flying and purchase of motor vehicles’ development of technologies in industrial sector which leads to automation of manual process by consuming fuel or electricity’ depleting existent source of fields and political instability and war like situations in majority of oil producing countries in middle eastern and African countries (McCullough, 2006).

Pricing Strategy

To gain an understanding of what pricing strategy is all about, one must first understand the concept of price. Lancaster and Reynolds (2004) understand price to be the means using which a business would support its research costs, marketing costs, the costs of manufacturing and a few other activities. Boone and Kurtz (2009) have provided us with a simple definition of price where “Price is an exchange value of a good or service”. It is crucial for marketers to understand whether the price paid for a good or service is worth paying the price for it. Again while in some cases consumers are willing to pay a high price if the product is of a superior quality, in other cases high prices often drive customers away (Boone and Kurtz, 2009).

Kotler (1997) is of the view that for the marketing mix, pricing is one of the most essential elements as it can transform fast while, also, contrasting product features and companies commitments. To this, Lancaster and Reynolds (2004) add that for a company to generate huge revenue it is important to have a good pricing strategy, a marketing mix and a suitable method of marketing the service or product.

Although the pricing strategy of a product changes as time passes companies launching a new product often find it difficult to set a price for the first time. To assist them in choosing the right strategy, they can choose between two broad strategies. These are market-skimming prices and market-penetration prices. However many companies also uses a mixed type of strategy all of the strategies are explained below.

  1. Market-Skimming Prices: Here companies examine the maximum income for a newly launched product by setting a high price for it. This strategy targets the few customers who are willing to pay a high price. However, for this strategy to be effective it must meet certain conditions. Firstly, the high price charged for the product must be supported by its quality. Secondly, the production cost of the product should not be so high that it is disadvantageous to produce a smaller quantity of the product. Lastly, there should be differentiation. In this it should be difficult for competitors to enter the market and sell at a cheaper price (Kotler and Armstrong, 2010). Here the company’s internal costs and their profit margin determine the price which is either too high or relatively low in relation to their competitor products and the company’s brand equality and their brand name and reputation (Kotler, 1997).
  1. Market-Penetration Pricing: This strategy allows companies sell a new product at a low price so as to target a larger number of buyers. They penetrate the market at a fast pace and in a deep manner with the sole intention of attracting a large number of buyers as quickly as possible. As with the previous strategy, for this strategy to work several conditions must be met. Firstly, the market segment in target should be responsive to fluctuations in prices. Secondly, with the increase in the sales volumes, there must be a fall in the cost of production and distribution.
  1. Mixed strategy: In this strategy companies uses both market skimming and market penetration strategy with changing times. When a new technology or a new product is launched in the market with no other competitive forces applicable in environment then companies try to earn maximum profitability by market skimming strategy. Since there is no competitive player in market for that particular product so companies can charge a premium and earn profits till they can and in due time when competition catches up and launches their own product in competition then the first organization lowers its prices and take advantage of the brand name and customer loyalty it has formed over the time period.Order Now

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