Question

Answer the following question:
After acquiring the necessary knowledge and skills on starting an Aloe vera Farm. Ashok wanted to be the leading manufacturer of Aloe vera products worldwide. He observed that the products were expensive as the demand of the products was more than supply. He was also keen to promote methods and practices that were economically visible, environmentally sound, and at the same time protecting public health.
Ashok's main consideration was about the amount of money paid by the consumers in consideration of the purchase of Aloe vera products. He also thought that competitors' prices and their anticipated reactions must also be considered for this.
After gathering and analysing information and doing correct marketing planning, he came to know that the consumers compare the value of a product to the value of money which they are required to pay. The consumers will be ready to buy a product when they perceived that the value of the product is at least equal to the value of money which they would pay.
Since he was entering into a new market, he felt that he may not be able to cover all costs. He knew that in the long run, the business will not be able to survive unless all costs are covered in addition to a minimum profit.
He examined the quality and features of the products of the competitors and the anticipated reactions of the consumers. Considering the same he decided to add some unique features to the packaging and also decided to provide free home delivery of the products.

The above case relates to a concept which is considered to be an effective competitive marketing weapon. In conditions of perfect competition, most of the firms compete with each other on this concept in the marketing of goods and services.
(1) Identify the concept.
(2) Explain briefly any four factors discussed in the above case related to the concept so identified.

Answer 1

1) The concept discussed in the given paragraph is the price of the product.

2) The factors that are being discussed are as follows:

1) Utility and demand for the product - In case the price is put too high, then the consumers will buy lower quantities of that product as per the law of demand, however, if the price of a good is low, then the consumers will be attracted towards the product and will demand more quantities of that good.
Quoted Line – After gathering and analysing information and doing correct marketing planning, he came to know that the consumers compare the value of a product to the value of money which they are required to pay. The consumers will be ready to buy a product when they perceived that the value of the product is at least equal to the value of money which they would pay.

2) Degree of competition in the market - If a firm faces high competition (i.e., if a large number of similar products are available in the market), this suggests that a firm cannot even slightly increase the price of its product. This is because by doing so, it would lose its customers to the competitors.
Quoted Line – He also thought that competitors' prices and their anticipated reactions must also be considered for this.

3) Cost of product - The cost involved in producing a product sets the basic minimum price for it. This cost comprises of the cost involved in the production, distribution, and sale of the product. The costs of a product can be classified into three categories – namely, fixed costs, variable costs, and semi-variable costs.

• Fixed costs refer to those costs that do not vary with the level of output produced.
• Variable costs refer to those costs that vary in direct proportion with the volume of production. As the volume of production increases, the variable costs also increase.
• Semi-variable costs refer to those costs that vary with the level of output, but not in direct proportion. As the level of output increases, semi-variable costs also increase (but less than the increase in the level of output).

Quoted Line – Since he was entering into a new market, he felt that he may not be able to cover all costs. He knew that in the long run the business will not be able to survive unless all costs are covered in addition to a minimum profit.

4) Methods of marketing - Methods of marketing used by the firm such as distribution, advertisement, customer services and branding also affect the determination of prices. If a firm incurs a huge cost on marketing of a product, then it would generally charge a higher price.
Quoted Line - Considering the same he decided to add some unique features to the packaging and also decided to provide free home delivery of the products.

5) Objectives of pricing - Every firm has various pricing objectives which it considers while deciding a price.

The following are some of the objectives of pricing:
i) Acquiring market share: If the objective of the firm is to capture a greater share of the market, then the firm would keep the price of its product at a lower level.
ii) Surviving competition: In case a firm faces difficulty in surviving in the market due to the availability of a larger number of similar products, then it keeps the price of the product low and even resorts to offering discounts and other such promotion techniques.     
iii) Focus on quality leadership: If the firm aspires to attain leadership in terms of quality of the product, it charges a higher price to cover the huge costs involved in the use of sophisticated machinery, research and development.