It can be considered because according to the price/quality relationship, it is believed by most consumers that a sign of good quality could be a sign of relatively high price. This relates to Tammy because of their unique feature which is ‘durability’ which came from the ‘tough Indian cotton’ which meant that more consumers are to depend on that price/quality and the premium price they are prepared to pay.
Brand It can have a large effect on the price that customers will pay. Brands therefore add value to a basic product or service by enabling the product or service to command a higher price or higher market share than an unbranded equivalent. Tammy has a reputation for offering ‘hard wearing’ products which gives them a reasonable image for the company brand. However, competitors like Primark are seen as ‘generic’ because of their cheap branding and quality of their clothing, although it is a popular company.
Recession It has an effect on the economy as well as prices because during a recession, it is accompanied by a drop in the stock market, an increase in unemployment and a decline in housing market. Tammy should acknowledge the economy before setting prices because as a consumer, they are more price-sensitive since they have less disposable income which means that they are unable to spend on desirable clothing and could alter to buying cheaper clothing. Also, as an organisation, there is less spending which means a fall in sales will lead to a fall in revenues and in the long-term, if low sales continue, it would lead the business in bankruptcy or being purchased by another firm.
Price of cotton It is important because it is the sole raw material that is needed to produce clothing, especially for Tammy since ‘most of its garments were made’. The price of cotton is increasing by 50%; however this has little effect on the company because of its price elasticity of demand being price inelastic. It would lead to Tammy no choice but to continue its clothing being by produced by cotton because there are fewer substitutes although synthetics could be used, also it would lead to the price of clothing increasing.
Labour costs Labour productivity estimates can be used to develop labour market policies and to monitor their effects. Likewise, trends in productivity estimates can be used to understand the effects of wage settlements on rates of inflation or to ensure that such settlements will compensate workers for realized productivity improvements. The wages that the Indian workers get could increase which gives an incentive for them to continue producing cotton and so forth, leading to Tammy increasing the price of their clothing in order to make profits and revenues.
Promotional activities Promotional activities, for instance a ‘pull’ strategy could require high spending on advertising and consumer promotion to build up consumer demand for a product, i.e. using celebrities such as David Beckham to dress their children in high quality, casual designer clothing to promote the brand image. Tammy could possibly do sales in the winter for instance, Dec/Jan because they could cut sale prices by doing 50% off deals to increase sales from their customers.
In the short-term, since Tammy has fewer competitors, it gives the company an incentive to raise prices because of the price elasticity of demand. Also, the market could be risky at the beginning, therefore in order to survive; Tammy should raise prices so that they can obtain revenues and profits for the company. However, in the long term, there will be potential competitors within the market, and therefore Tammy would have to lower their prices to set in line with their competitors. This means that they would have to forgo their profits and increase their sales and market share.
The practice of price skimming involves charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market. The objective with skimming is to skim off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the early adopters falls. Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favourable perceptions among buyers, based solely on the price. The practice is intended to exploit the tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used businesses wishing to enter a new market or build on a relatively small market share.Value-based pricing is a method of pricing products in which companies first try to determine how much the products are worth to their customers. The goal is to avoid setting prices that are either too high for customers or lower than they would be willing to pay if they knew what kind of benefits they could get by using a product.
Product-line pricing is a collection of product items that are related by the type of raw materials used, similar technology used, or merely as a common-sense grouping. A truly effective product line should be customer-focused and therefore should link to the range of needs of the particular segment/s targeted by the firm. I would recommend product-line pricing because Tammy could exhibit their clothing by using a dummy with an outfit to bring out attention to their customers because products like clothing have a short life cycle; therefore they need to be sold as a collection than individually.
As a children’s company, they can provide different ranges of clothing, i.e. for males, a matching shirt, jeans and matching shoes for a lower price as an outfit rather than buying each of them separately. Also, they could do promotional deals, i.e. buy 2 shirts and get one free is like an extra feature offered in order for the consumer to pay. This would draw enough interest in the primary product that the upgraded product (the free shirt) will be sold at a greater price based off in the basic primary product.
References
Agriculture and Consumer Protection (2011) Marketing Information Systems [Online]. Available at: http://www.fao.org/docrep/W3241E/w3241e0a.htm [Accessed: 21 May 2011]
Blurtit (2011) Magazines [Online]. Available at: http://www.blurtit.com/q465933.html [Accessed: 21 May 2011]
Kotler, P. (2009) Marketing Management. Indianapolis, Ind.: Prentice Hall; London: Pearson Education [distributor] 2009
Palmer, A. (2009) Introduction to Marketing: theory and practice. Oxford: Oxford University Press 2009
