low-cost signalling

Examples of low-cost signalling in the following topics:

• Predatory Pricing

  • Predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market.
  • Economists argue that the competitors (the 'prey') know that the predator cannot sustain low prices forever, so it is essentially a game of chicken.
  • Prey may not see it as a game of chicken, if they truly believe that the prey has actually found a way to achieve a lower cost of production than them.
  • This is known as 'low-cost signalling'.
  • Low oil prices in the 1990's were considered a case of alleged predatory pricing.

• The Importance of Price to Marketers

  • If, however, a firms wants to position itself as a low-cost provider, it will charge low prices.
  • Someone who goes to a low-cost supermarket, such as Aldi, knows what to expect when he walks into the store.
  • While product, place and promotion affect costs, price is the only element that affects revenues, and thus, a business's profits.
  • Both a price that is too high and one that is too low can limit growth.
  • If, however, a firm wants to position itself as a low-cost provider, it will charge low prices.

• Multiple Sources of Advantage

  • Cost Leadership Strategy - The goal of cost leadership strategy is to produce products and services at the lowest cost in the industry.
  • Walmart, a leader in offering low cost products, uses an automated inventory replenishment system to reduce inventory storage requirements and save floor space for additional goods.
  • Southwest Airlines has differentiated itself from the airline industry through its low cost and express service features.
  • McDonald's cost leadership strategy, which enables it to offer low cost food consistent across multiple locations, makes it the market leader in fast food.

• Organizational Objectives

  • A business can cut its costs, it can sell more, or it can find more profit with a better pricing strategy.
  • When costs are already at their lowest and sales are hard to find, adopting a better pricing strategy is a key option to stay viable.
  • Price-quality effect – Buyers are less sensitive to price the more that higher prices signal higher quality.
  • Price proportion cost: The price proportion cost refers to the percent of the total cost of the end benefit accounted for by a given component that helps to produce the end benefit, such as with computers.
  • The smaller the given component's share of the total cost of the end benefit, the less sensitive buyers will be to the component's price.

• The Global Economy

  • Developing marketing plans for different regions gives companies flexibility when reacting against competition or defending their position (market leadership, low cost provider, etc.) in a particular market.
  • For example, cost of product development (produced locally or imported), cost of ingredients, cost of delivery (transportation, tariffs, etc.), and other variables will determine product pricing.
  • Product positioning, including whether the product is high-end, low-cost, or middle ground, compared with competing brands also influences the ultimate profit margin.
  • Likewise, a low-cost product in France would find limited success in an expensive boutique.
  • An integrated marketing communications (IMC) strategy is key to achieving marketing goals, since IMC reduces costs, minimizes organizational redundancies, maximizes speed of implementation, and unifies brand messaging.

• Success and Failure: Strategies to Improve Success

  • The main feature of Wal-Mart's business model is to continuously cut costs and so offer lower prices than its competitors.
  • Wal-Mart also continuously pressures its suppliers to cut costs.
  • A retailer that wants to follow Wal-Mart's strategy of low prices needs to expand rapidly.
  • They were also located far apart, which resulted in high logistical costs.
  • For this reason, Wal-Mart's low price strategy did not create sufficient competitive advantage.

• New Product Pricing

  • In the introductory stage of a new product's life cycle means accepting a lower profit margin and to price relatively low.
  • It creates cost control and cost reduction pressures from the start, leading to greater efficiency.
  • Low prices act as a barrier to entry.
  • It can be based on marginal cost pricing, which is economically efficient.
  • A penetration strategy would generally be supported by the following conditions: price-sensitive consumers, opportunity to keep costs low, the anticipation of quick market entry by competitors, a high likelihood for rapid acceptance by potential buyers, and an adequate resource base for the firm to meet the new demand and sales.

• The Product Life Cycle

  • The product life cycle (PLC) describes the life of a product in the market with respect to business/commercial costs and sales measures.
  • This stage is characterized by a low growth rate of sales as the product is newly launched and consumers may not know much about it.
  • High costs due to initial marketing, advertising, distribution and so on.
  • Little or no profit is made owing to high costs and low sales volumes

• Nonprice Competition

  • It can be contrasted with price competition, which is where a company tries to distinguish its product or service from competing products on the basis of a low price.
  • Non-price competition typically involves promotional expenditures (such as advertising, selling staff, the locations convenience, sales promotions, coupons, special orders, or free gifts), marketing research, new product development, and brand management costs.
  • Firms will engage in non-price competition, in spite of the additional costs involved, because it is usually more profitable than selling for a lower price and avoids the risk of a price war.
  • Its prices are low, but not necessarily the lowest.

• Social Media Marketing Communications

  • Social media serves as a cost-effective communication channel for promoting brands to target audiences.
  • Today, new semantic analysis technologies allow marketers to detect buying signals based on shared and posted online content.
  • Understanding these buying signals can help sales professionals target relevant prospects and help marketers run micro-targeted campaigns.
  • Organizations can use social media to cost-effectively increase communications across the promotional mix, fostering brand awareness and, often, improved customer service.