260784783-pricing-strategy-of-nokia.doc

UNIVERSITY OF MUMBAI 2013-14 PROJECT REPORT ON “PRICING STRATEGY OF NOKIA” SUBJECT “STRATEGIC MARKETING” BY NAME OF STUDENT: GAURAV. J. MADYE COLLEGE SEAT NO :- 15 MASTER IN COMMERCE ( SEMESTER-II )

K.M.AGRAWAL COLLEGE OF ARTS & COMMERCE, KALYAN (W).

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CERTIFICATE K.M.AGRAWAL COLLEGE, KALYAN

THIS IS TO CERTIFY THAT MR. GAURAV. J. MADYE HAS WORKED AND COMPLETED HIS PROJECT WORK FOR THE DEGREE OF MASTER IN COMMERCE IN THE FACULTY OF COMMERCE IN THE SUBJECT OF “STRATEGIC MARKETING” ON TITLE OF PROJECT WORK TO BE WRITTEN “PRICING STRATEGY OF NOKIA” UNDER MY SUPERVISION. IT IS HIS OWN WORK AND FACTS REPORTED BY HIS PERSONAL FINDINGS AND INVESTIGATIONS. NAME & SIGNATURE OF PROF. . SUJIT SINGH (INTERNAL GUIDE)

PROF. (EXTERNAL GUIDE)

PROF. ANITA MANNA

(PRINCIPAL)

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DECLARATION I, GAURAV. J. MADYE THE STUDENT OF K.M.AGRAWAL COLLEGE OF M.COM (PART-1) HERE BY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON IN THE “PRICING STRATEGY OF NOKIA” FOR THE ACADEMIC YEAR 2013-14. THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE. I HERE BY FURTHER DECLARE THAT ALL INFORMATION OF THIS DOCUMENT HAS BEEN OBTAINED AND PRESENTED IN ACCORDANCE WITH ACEDAMIC RULES AND ETHICAL CONDUCT. COLLEGE SEAT NO. :- 15 YEAR:- 2013-14  DATE : PLACE :- KALYAN NAME & SIGNATURE (GAURAV. J. MADYE)

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ACKNOWLEDGEMENT I EXPRESS MY GRATEFUL THANK‟S TO PROJECT GUIDE PROF. SUJIT SINGH FOR HIS TIMELY GUDENCE AND HELP RENDERED AT EVERY STAGE OF THE PROJECT WORK. I EXPRESS SINCERE THANKS TO OUR PRINCIPLE PROF. ANITA MANNA MADAM, WHO HAS GIVEN HER VALUABLE MORAL SUPPORT, MOTIVATION, INSPIRATION, AND EDUCATIONAL ATMOSPHERE IN THIS INSTITUTE FOR THE SUCCESSFUL COMPETITION OF THE PROJECT WORK. I ALSO WISH TO EXPRESS MY REGARDS TO THE LIBRERIAN FOR HER CO-OPERATION IN PROVIDING ME WITH NECESSARY REFERENCE MATERIALS. I ALSO EXPRESS MY THANKS TO FACULTY MEMBERS AND FOR CO-OPERATION AND HELP GIVEN IN COMPLETING THIS PROJECT. FURTHER THANKS TO MY PARENTS, MY FREINDS AND MY FAMILY FOR THEIR UNLIMITED AND SUPPORT DURING MY STUDY.

GAURAV. J. MADYE 4

TABLE OF CONTENTS TOPICS

PAGES

INTRODUCTION ………………………………………………………………….6 IMPORTANCE OF PRICING………………………………………………………..8 FACTORS EFFECTING DEMAND… ………….………………………………...11 SETTING PRICING POLICY………………………………………………………12 PRICING INFLUENCES ON PRICING POLICY……………………………….. 18 NEW PRODUCT PRICING STRATEGIES …………………………………….. 21 PRODUCT MIX PRICING STRATEGIES ……………………………………… 24 PRICE ADJUSTMENT STRATEGIES ……………………………………………25 SETTING THE PRICE ………………………………………………………….... 27 FACTORES EFFECTING PRICING DECISION …………………………………28 INITIATING AND RESPONDING TO PRICE CHANGES ……………………..30

Case Study Analysis on ‘Pricing Strategy of NOKIA’………………..32 NOKIA - MADE IN INDIA– A DETAILED ANALYSIS………………………..36 PRICING STRATEGY OF NOKIA……………………………………………….39 CONCLUSION……………………………………………………………………..40 REFRENCES ………………………………………………………………………41

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INTRODUCTION Price is the one element of the marketing mix that produce revenue ; the other element produce cost, prices are the easiest marketing mix element to adjust ; product features, channels and even promotion take more time .price also communicating to the market the company’s intended value positioning of its product or brand.  Narrowly, price is the amount of money charged for a product or service.  Broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.  Dynamic Pricing: charging different prices depending on individual customers and situations.

Today companies are wrestling with a number of difficult pricing tasks  How to respect to aggressive price cutters  How to price the same product when it goes through different channels  How to price the same product in different countries  How to price on improved product while still selling the previous version Many companies do not handle pricing well. They make these common mistakes; price is to cost-oriented ; price is not revised often enough to capitalize on market changes; price is set independent of the rest of the marketing mix rather than as an intrinsic element of marketing positioning strategy; and price is not varied enough for different product item ,market segmentation , distribution channels, and purchase occasions. Companies do their pricing in a variety of ways. In small companies, price is often set by the boss. In larger companies, pricing is handling by division and product line managers. Even here, top management sets general objectives and policies and often approve the prices proposed by lower level of management. 6

PRICING-INTRODUCTION Setting the right price is an important part of effective marketing. It is the only part of the marketing mix that generates revenue (product, promotion and place are all about marketing costs). Price is also the marketing variable that can be changed most quickly, perhaps in response to a competitor price change. Put simply, price is the amount of money or goods for which a thing is bought or sold. The price of a product may be seen as a financial expression of the value of that product. For a consumer, price is the monetary expression of the value to be enjoyed/benefits of purchasing a product, as compared with other available items. The concept of value can therefore be expressed as: (Perceived) VALUE = (perceived) BENEFITS – (perceived) COSTS A customer’s motivation to purchase a product comes firstly from a need and a want: e.g. • Need: "I need to eat • Want: I would like to go out for a meal tonight") The second motivation comes from a perception of the value of a product in satisfying that need/want (e.g. "I really fancy a McDonalds"). The perception of the value of a product varies from customer to customer, because perceptions of benefits and costs vary. Perceived benefits are often largely dependent on personal taste (e.g. spicy versus sweet, or green versus blue). In order to obtain the maximum possible value from the available market, businesses try to ‘segment’ the market –

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that is to divide up the market into groups of consumers whose preferences are broadly similar – and to adapt their products to attract these customers. In general, a products perceived value may be increased in one of two ways – either by: (1) Increasing the benefits that the product will deliver, or, (2) Reducing the cost. For consumers, the PRICE of a product is the most obvious indicator of cost - hence the need to get product pricing right.

IMPORTANCE OF PRICING When marketers talk about what they do as part of their responsibilities for marketing products, the tasks associated with setting price are often not at the top of the list. Marketers are much more likely to discuss their activities related to promotion, product development, market research and other tasks that are viewed as the more interesting and exciting parts of the job. Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities. Some reasons pricing is important include: Most Flexible Marketing Mix Variable – For marketers price is the most adjustable of all marketing decisions. Unlike product and distribution decisions, which can take months or years to change, or some forms of promotion which can be time consuming to alter (e.g., television advertisement), price can be changed very rapidly. The flexibility of pricing decisions is particularly important in times when the marketer seeks to quickly stimulate demand or respond to competitor price actions. For instance, a marketer can agree to a field salesperson’s request to lower price for a potential prospect during a phone conversation. Likewise a marketer in charge of online operations can raise prices on hot selling products with the click of a few website buttons.  Setting the Right Price – Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to the 

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marketing organization losing revenue. Prices set too low may mean the company is missing out on additional profits that could be earned if the target market is willing to spend more to acquire the product. Additionally, attempts to raise an initially low priced product to a higher price may be met by customer resistance as they may feel the marketer is attempting to take advantage of their customers. Prices set too high can also impact revenue as it prevents interested customers from purchasing the product. Setting the right price level often takes considerable market knowledge and, especially with new products, testing of different pricing options.  Trigger of First Impressions - Often times customers’ perception of a product is formed as soon as they learn the price, such as when a product is first seen when walking down the aisle of a store. While the final decision to make a purchase may be based on the value offered by the entire marketing offering (i.e., entire product), it is possible the customer will not evaluate a marketer’s product at all based on price alone. It is important for marketers to know if customers are more likely to dismiss a product when all they know is its price. If so, pricing may become the most important of all marketing decisions if it can be shown that customers are avoiding learning more about the product because of the price.  Important Part of Sales Promotion – Many times price adjustments is part of sales promotions that lower price for a short term to stimulate interest in the product. However, as we noted in our discussion of promotional pricing in Part: 15: Sales Promotion tutorial, marketers must guard against the temptation to adjust prices too frequently since continually increasing and decreasing price can lead customers to be conditioned to anticipate price reductions and, consequently, withhold purchase until the price reduction occurs again.

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Some of the more common pricing objectives are: Maximize long-run profit Maximize short-run profit Increase sales volume (quantity) Increase dollar sales Increase market share Obtain a target rate of return on investment (ROI) Obtain a target rate of return on sales Stabilize market or stabilize market price: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on nonprime considerations. Stabilization of margin is basically a cost-plus approach in which the manager attempts to maintain the same margin regardless of changes in cost. Company growth Maintain price leadership Desensitize customers to price Discourage new entrants into the industry Match competitors prices Encourage the exit of marginal firms from the industry Survival Avoid government investigation or intervention Obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel Enhance the image of the firm, brand, or product Be perceived as “fair” by customers and potential customers Create interest and excitement about a product Discourage competitors from cutting prices Use price to make the product “visible" Build store traffic Help prepare for the sale of the business (harvesting) 10

Social, ethical, or ideological objectives Get competitive advantage

FACTORS EFFECTING DEMAND Consider the factors affecting the demand for a product that are (1) Within the control of a business and (2) Outside the control of a business: Factors within a businesses’ control include: • Price (assuming an imperfect market – i.e. not perfect competition) • Product research and development • Advertising & sales promotion • Training and organization of the sales force • Effectiveness of distribution (e.g. access to retail outlets; trained distributor agents) • Quality of after-sales service (e.g. which affects demand from repeatbusiness) Factors outside the control of business include: • The price of substitute goods and services • The price of complementary goods and services • Consumers’ disposable income • Consumer tastes and fashions Price is, therefore, a critically important element of the choices available to businesses in trying to attract demand for their products

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SETTING PRICING POLICY STEP 1: SELECTING THE PRICING OBJECTIVES: The company first decides where it wants to position it market offering. The clearer a firm’s objectives, the easer is to set price. A company can pursue any of five major objectives through pricing: survival, maximum current profit, maximum market share, maximum market skimming, or product quality leadership. Company purchase survival as their major objective if they are plagued with over capacity, intense competition, or change in consumer wants. As long as prices cover variable costs and some fixed costs, a company stays in business. Survival is a short run objective; in the long run, a firm must learn how to add value or face extinction. Many companies try to set prices that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or Rate of return on investment. This strategy assumes that the firm has knowledge of its demand and cost functions; in reality, these are difficult to estimate. In emphasizing current performance, a company may sacrifice long run performance by ignoring the effects of other marketing mix variables, competitors’ reactions, and legal restraints on price. Some companies want to maximize their market share. They believe that a higher sales volume will lead to lower cost and higher long run profit they set the lowest price assuming the market is price sensitive. It often happens that companies unwilling a new technology favor setting high prices to “skim “the market. Sony is a frequent practitioner of market skimming pricing. When Sony introduced the world’s first high definition television (HDTV) to the Japanese market in 1990, the high-tech sales cost $43000.This television were purchased by customers who could afford to pay a high price for the new technology. Sony rapidly reduced the price over the next three years to attract new buyers, and by 1993a 28-inch H-D tv cost Japanese buyers just over $6000.In 2001 a customer cold buy a 40-inch 12

H-D TV for about $2000.A price many could afford. In this way, Sony skimmed the maximum amount of revenue from the various segments of the markets.

STEP 2: DETERMING DEMAND: Each price will lead to different level of demand and therefore have a differ impact on a company’s marketing objectives. The relation between alternative prices and the resulting current demand is captured in demand curve. In the normal case, demand and price are inversely related; the higher the price, the lower the demand. In this case of prestige goods the demand curve sometimes slopes upward. Perfume Company raised its price and sold more perfumes rather than less! Some customer takes the higher price to signify a better product. However if the price is too high, the level of demand may fall. On the other hand, the impact of internet has been to increase customers’ price sensitivity. In buying a specific book online, for e.g. , a customer can compare the price offered by over 2 dozen online book stores by just taking mysimon.com. These prices can differ by as much as 20 percent. The internet increases the opportunity for price sensitive buyers to find and favor lower-price sites. At the same time, many buyers are not that price sensitive. McKinsey conducted a study and found that 89 percent of internet customers visit only 1 book site, 84 percent visited only 1 toy site, and 81 percent visited only 1 music site, which indicates that there is a less price comparison shopping taking place on the internet that is possible. Companies need to understand the price sensitivity of their customers and prospects and their trade-offs peoples are willing to make between price and product’s characteristics.

STEP 3: ESTIMATING COSTS: Demand sets a ceiling of a price on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of production, distributing, and selling the product, including a fair return for its efforts and risks.

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TYPES OF COSTS AND LEVELS OF PRODUCTION: A company’s costs take two firms, fixed and variable. Fixed costs (also known as over head) are costs that do not vary with production or sales revenue. Accompany must pay bills each month for rent , heat, and trust, salaries, and so on , regardless of output . Variable costs vary directly with the level of production. For example, each hand calculator produced by Texas Instruments involves a cost of plastic, macro-processing chips, packaging, and the like. These costs tend to be constant per unit produced; they are called variable because their total varies with the number of unit produced. Total cost consists of the sum of the fixed and variable costs for any given level of production. Average costs is the cost per unit at that level of production; if is equal to total cost divided by production. Management wants to charge a price that will at least cover a total production cost at a given level of production. ACCUMULATED PRODUCTION: Suppose TI runs a plant that produces three thousand hand calculators per day. As TI gains experience producing hand calculators, its methods improve. Workers learn shortcuts, materials flow more smoothly, and procurement costs falls. The result shows, in that average cost falls with the accumulated production experience. DIFFERENTIATED MARKETING OFFERS: Today’s companies try to adopt their offers and terms to different buyers. Thus a manufacturer will negotiate different terms with different retail chains. One retailer may want daily delivery (to keep stock lower) while an other may accept twice a week delivery in order to get a lower price. The manufacturer’s costs will differ with each chain, and so will its profits. TARGET COSTING Costs change with production sale and experience. They can also change as a result of concentrated efforts by designers, engineers and purchasing agents to reduce them. 14

STEP 4: ANALYZING COMPETITORS COSTS, PRICES, &OFFERS: Within the range of possible prices determined by market demand and company’s costs, a firm must take the competitor’s costs, prices, and possible price reactions into account. The firm should first consider the nearest competitor’s price. If the firm offers contains positive differentiation features not offered by the nearest competitors, their worth to the customer should be evaluated and added to the competitor’s price. If the competitor’s offers contains some features not offered by the firm, their worth o the customer should be evaluated and subtracted from the firm’s price. Now the firm can decide whether it can charge more, the same, unless than the competitor. A firm must be aware, however, that competitors can change their prices in reaction to the price set by the firm.

STEP 5: SELECTING THE PRICING METHOD: Given the three cs- the customers’ demand schedule, the cost function, the competitors’ prices- a company is now ready to select a price. Companies select a pricing method that includes one or more of various considerations. We will examine seven price setting methods: mark-up pricing, target return pricing, perceive value pricing, value pricing, going rate pricing, action type pricing and group pricing.

MARK-UP PRICING: The most elementary pricing method is to add a standard mark-up to the product’s cost. Construction companies submit job bids by estimating the total project cost and adding a standard mark-up for profit.

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Suppose a toaster manufacture has a following cost and sale expectation Variable cost per unit …………….. Fixed cost ………………. Expected unit sales …………….

$10 300,000 50,000

The manufacturer’s unit cost is given by: Unit cost= variable cost +

fixed cost =$10+ $300,000 =$16 Unit sales 50,000

Now assume the manufacturer wants to earn a 20 % markup on sales. The manufacturer’s markup price is given by: Markup price =

unit cost (1-desired return on sales)

= $16 1-0.2

=$20

TARGET-RETURN PRICING: In target return pricing the firm determines the price that would yield its target rate of return on investment (ROI). Target pricing is used to general motors, which price its auto-mobiles to achieve a 15-20 percent ROI. PERCIVED-VALUE PRICING: In increasing number of companies based their price on the customer’s perceived value. They must deliver the value promised by their value proposition, and the customer must perceived this value. They use the other marketing mix elements, such as advertising and sales force, to communicate and enhance perceive value in buyer’s mind. VALUE-PRICING: In recent years, several companies have adopted value pricing, in which they win loyal customers by charging a fairly low price for a high quality offering. Among the best practitioners of value pricing are WALL-MART, IKEA, and SOUTH-WEST airlines. 16

GOING RATE-PRICING: In going rate pricing, the firm basis its price largely on competitors prices. The firm might charge the same, more, or less than major competitors. In oligopolistic industries that sell a commodity such as steel, paper, or fertilizers, firms normally charge the same price. ACTION TYPE PRICING: Is growing more popular, especially with the growth of the internet. There are over 2000 electronic market places selling everything from pigs to use vehicles to cargo to chemicals. One major use of actions is to dispose of excess inventories or to use good. Company needs to be aware of the three major types of actions and their separate pricing procedures *ENGLISH ACTIONS (ascending bids) *DUTCH ACTIONS (descending bids) *SEALED BIDS ACTIONS GROUP PRICING: The internet is facilitating methods where by consumers are business buyers can join groups to buy at a lower price. Consumer can go to volumebuy.com to buy electronics, computers, subscriptions, and another item.

STEP 6: SELECTING THE FINAL PRICE: Pricing method narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors including physiological pricing, gain and risk sharing pricing, the influence of other marketing mix-elements on price, company pricing policy and the impact of price on other parties. PHYSIOLOGICAL PRICING: Many customers use price as an indicator of quality. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars.

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GAIN-RISK-SHARING PRICING: Buyer may resist accepting a seller’s proposals because of the high perceive level of a risk. The seller has the option of offering to absorb part or all of the risk if he does not deliver the full promised value.

THE INFLUENCE OF OTHER MARKETING MIXES ELEMENTS: The final price must take into account the brand’s quality and advertising relating to competition. *Brands with average relative quality but high relative advertising budgets were able to charge premium prices. IMPACT OF PRICING ON OTHER PARTIES: Management must also consider he reaction of other parties to the contemplated price. How will distributors and dealers feel about it? Will the sales force be willing to sale at that price? How will competitors react? Will supplier raise their prices when they see the company’s price? Will the government intervene and prevent this price from being charged? PRICING-INFLUENCES ON PRICING POLICY The factors that businesses must consider in determining pricing policy can be summarized in four categories:

(1) Costs In order to make a profit, a business should ensure that its products are priced above their total average cost. In the short-term, it may be acceptable to price below total cost if this price exceeds the marginal cost of production – so that the sale still produces a positive contribution to fixed costs. (2) Competitors If the business is a monopolist, then it can set any price. At the other extreme, if a firm operates under conditions of perfect competition, it has no 18

choice and must accept the market price. The reality is usually somewhere in between. In such cases the chosen price needs to be very carefully considered relative to those of close competitors. (3) Customers Consideration of customer expectations about price must be addressed. Ideally, a business should attempt to quantify its demand curve to estimate what volume of sales will be achieved at given prices (4) Business Objectives Possible pricing objectives include: • To maximize profits • To achieve a target return on investment • To achieve a target sales figure • To achieve a target market share • To match the competition, rather than lead the market PRODUCT PRICING STRATEGIES Developing a pricing strategy perplexes many CEOs, marketing and sales executives, and brand managers. It's not surprising really: real businesses don't always follow the pricing strategy models that business schools and books on pricing strategy present. But there are a few basic guidelines that can help take some of the mystery out of the process of establishing a successful pricing strategy. We consider that there are four basic components to a successful pricing strategy: 1. Costs. Focus on your current and future, not historical, costs to determine the cost basis for your pricing strategy. 2. Price Sensitivity. The price sensitivities of buyers shift based on a number of factors and your pricing strategy must shift with them. 19

3. Competition. Pay attention to them, but don't copy them . . . when it comes to pricing strategy they may have no idea what they're doing. 4. Product Lifecycle. How you price, and what value you provide for that price, will change as you move through the product lifecycle. Pricing before you build Establishing a pricing strategy is an activity that should be completed before you start product development. The only way to accurately determine how much money you can afford to spend on development, support, promotion and the other costs associated with a product is to analyze how much of that product you will sell, and at what price. That's the heart of a successful pricing strategy. Use the Right Costs A successful pricing strategy is your means of making a profit today, not of recovering costs spent a year ago. Don't use the cost of developing your current product as the basis for its price. Instead, use the current costs of developing your new products as the basis of the price of your current product. Raise Price to Exploit a Reticence to Switch Once the customer is yours, the situation switches in your favor. One of the resistance factors your sales force encounters on a new sale is reticence to switch. An existing customer is still unwilling to learn something new, only now they're afraid to switch FROM you, not TO you. They would much prefer to add the functionality of your product enhancements instead of learning how to use something new. For you, price sensitivity is much lower as comfort and ease factors increase. So you might raise your update pricing accordingly. Study the Competition Study the competition, but don't react and don't copy them, since they're likely making mistakes anyway. Let them guide you in terms of where you set your boundaries, and in terms of counter offensives you can launch to deal with obvious bonehead pricing on their part. And remember this as well: any move you make can be countered by them just as easily. Don't get caught in a no-win price war--which may hurt your product, their product and devalue your marketplace.

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Align with the Product Life Cycle How high or low you set your price is also going to be driven by where your product is in its life cycle. In general, the farther along you go toward the Decline phase the lower your price should be, since your market will be (a) saturated with product and (b) have increased price sensitivity as their knowledge of the products increases. One technique to consider is unbundling support, training and services from the product itself, which will allow you to lower price without discounting. Strategic pricing is the effective, proactive use of product pricing to drive sales and profits, and to help establish the parameters for product development. Used wisely it is a clearly powerful tool for successful marketing strategies.

NEW PRODUCT-PRICING STRATEGY Pricing strategies usually change as the product passes through its life cycle. The introductory stage is especially challenging. Companies bringing out new product face the challenge of setting prices for the first time

1 ) Market-skimming pricing 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. The success of a price-skimming strategy is largely dependent on the inelasticity of demand for the product either by the market as a whole, or by certain market segments. High prices can be enjoyed in the short term where demand is relatively inelastic. In the short term the supplier benefits from ‘monopoly profits’, but as profitability increases, competing suppliers are likely to be attracted to the 21

market (depending on the barriers to entry in the market) and the price will fall as competition increases. The main objective of employing a price-skimming strategy is, therefore, to benefit from high short-term profits (due to the newness of the product) and from effective market segmentation.

There are several advantages of price skimming • Where a highly innovative product is launched, research and development costs are likely to be high, as are the costs of introducing the product to the market via promotion, advertising etc. In such cases, the practice of priceskimming allows for some return on the set-up costs • By charging high prices initially, a company can build a high-quality image for its product. Charging initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. By contrast, a lower initial price would be difficult to increase without risking the loss of sales volume • Skimming can be an effective strategy in segmenting the market. A firm can divide the market into a number of segments and reduce the price at different stages in each, thus acquiring maximum profit from each segment • Where a product is distributed via dealers, the practice of price-skimming is very popular, since high prices for the supplier are translated into high mark-ups for the dealer • For ‘conspicuous’ or ‘prestige goods’, the practice of price skimming can be particularly successful, since the buyer tends to be more ‘prestige’ conscious than price conscious. Similarly, where the quality differences between competing brands is perceived to be large, or for offerings where such differences are not easily judged, the skimming strategy can work well. An example of the latter would be for the manufacturers of ‘designer-label’ clothing.

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2) Market-Penetration pricing 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. This will only be possible where demand for the product is believed to be highly elastic, i.e. demand is price-sensitive and either new buyer will be attracted, or existing buyers will buy more of the product as a result of a low price. A successful penetration pricing strategy may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs, which justify the use of penetration pricing strategies to gain market share. Penetration strategies are often used by businesses that need to use up spare resources (e.g. factory capacity). A penetration pricing strategy may also promote complimentary and captive products. The main product may be priced with a low mark-up to attract sales (it may even be a loss-leader). Customers are then sold accessories (which often only fit the manufacturer’s main product) which are sold at higher mark-ups. Before implementing a penetration pricing strategy, a supplier must be certain that it has the production and distribution capabilities to meet the anticipated increase in demand. The most obvious potential disadvantage of implementing a penetration pricing strategy is the likelihood of competing suppliers following suit by reducing their prices also, thus nullifying any advantage of the reduced price (if prices are sufficiently differentiated the impact of this disadvantage may be diminished). A second potential disadvantage is the impact of the reduced price on the image of the offering, particularly where buyers associate price with quality. 23

PRODUCT-MIX PRICING STRATEGIES The strategy for setting the product’s price often has to be changed when the product is part of a product mix. In this case the firm looks for a set of prices that maximizes the profit on the total product mix. Pricing is difficult because the various products have related demand and cost and face different degrees of competition: Product Line: Setting price steps between product line items (for example. Honda Civic is implementing product line pricing strategy for their cars as they are offering different models of same line for different prices with different features) Optional Product: Pricing optional or accessory products (for example. If a person buys a new Nokia’s 6600 cell phone and if he also tends to pay extra amount of money for the memory card inside of it than it is optional pricing for that product…..or another example can be a person buying a personal computer and paying extra amount of money for the video card inside of it…) Captive Product: Pricing products that must be used with the main product (for example. Colgate offering its toothbrush along with its toothpaste….or Gillette offering set of additional blades with its razors) By-Product: Pricing low value by product to get rid of them (for example. Many companies obtain soap during the refining process of cooking oils and then manufactures beauty soaps and sells it along with the cooking oils as their by-products…. As Unilever is obtains Lux through Dalda) Product Bundle: Pricing bundles of products sold together (for example Nescafe is offering its coffee along with its cup for 100 rupees thus their offer is similar to product bundle…besides that different combo deals of KFC which includes different offerings under one state is also an example of product bundle pricing)

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PRICE ADJUSTMENT STRATEGIES A company usually adjusts their basic prices to account for various customers’ differences and changing situations. Here we examine the six price adjustment strategies. 1) Discount & Allowance: reduced prices to reward customer responses such as paying early or promoting the product. (For example. Different seasonal or occasional offers of Nike or Chen one offering certain discount on different range of shopping) 2) Discriminatory: adjusting prices to allow for differences in customers, products, and locations (for example. Price of Pepsi in Pearl Continental Hotel as it is much higher than its actual value in the hotel just because of the segment and environmental change in this case the cost is the same but according to the segment pricing is different) 3) Psychological: adjusting prices for psychological effects. Ex: $299 vs. $300 (for example. English toothpaste reduced its prices from 12 to 10 just to attract their customers and increase their sales in this way they implemented physiological pricing strategy besides that different offers in the market pricing like just 99 rupees or 999 rupees in various stores is also physiological pricing strategy.) 4) Value: adjusting prices to offer the right combination of quality and service at a fair price. (For example a person shopping in Zainab market might seek value and quality at fair price. This process helps to deliver value and satisfaction to customers.) 5) Promotional: temporarily reducing prices to increase short-run sales. (For example. Pepsi reduces its prices during the month of Ramadan and also offers different schemes and similarly Warid Zem offers nights free offers to their customers) 6) Geographical: adjusting prices to account for geographic location of customer. (For example. DHL charges different rates according to the destination) 25

*FOB Origin Pricing: Geographical pricing strategy in which goods are placed free on board a career, the customer pays the freight from the factory to the destination. (For example. A person buying a compact disc from abroad in which he have to pay the transport expense for bringing it in access) *Uniform Delivered Pricing: A geographical pricing strategy in which the company charges the same price plus frightened to all customers, regardless of their location.( for example . every customer have to pay a similar and specified amount of money to Nike if they are transacting from abroad) *Zone Pricing: A geographical pricing strategy in which the company sets up to or more zones. All customers within a zone pay the same total price; the more distant zone, the higher the price.( for example. If Adidas is transacting with its customers from abroad regions then they will charge freight according to the distance of the region and as the distance will increase freight charges will also increase.) *Basing Point Pricing: A geographical pricing strategy in which the seller designs some city as a basing point and charges all customers the freight cost from that city to the customer. ( for example. Dell computers established their basing point in India and then delivers their products in the Asian regions charging freight from that region) 7) International: adjusting prices in international markets. (For example. Prices of Levi’s or Nike might not be same in dolmen mall and in international stores…it will be definitely differ according to the environmental offerings.)

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SETTING THE PRICE A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enters bids on new contract work. The firm must decide where to position its product on quality and price. In some markets, such as the auto markets, as many as eight price points can be found.

SEGMENT Ultimate Gold standard Luxury Special need Middle Price alone

EXAMPLE Rolls-Royce Mercedes Benz Audi Volvo Buick Kia

Figure 16.1 shows nine price quality strategies. The diagonal strategies 1,5,and 9 can all co-exit in the same market; that is , one firm offer a high quality product at a high price , another offers an average quality product at an average price and still another offers a low quality product at a low price. All three competitors can co-exit as long as the market consists of three sgroups of buyers: those who insist on quality, those who insist on price, and those who balance the too. Strategies 2,3and 6 are ways to attack the diagonal positions. Strategy to say’s “Our product has the same high quality as product 1 but we charge less”. Strategy 3 says the same thing and offers and even greater saving. If quality-sensitive customers believe these competitors, they will sensibly buy from them and save money (unless firm earns 1’s product has acquirable snob appeal. Positioning strategies 4,7and 8 amount to over-pricing the product in relation to its quality. The customer will feel “taken “and will probably complain or spread bad words of mouth about the company. 27

PHILIP KOTLER HAVE IDENTIFIED 9 PRICE QUALITY STRATEGIES: NINE PRICE QUALITY STRATEGIES: PRICE

HIGH

HIGH

MEDIUM

LOW

1. PREMIUM STRATEGY

2.HIGH-VALUE STRATEGY

3.SUPER- VALUE STRATEGY

4.OVERCHARGING STRATEGY

5.MEDIUM-VALUE STRATEGY

6. GOOD-VALUE STRATEGY

7. RIP-OFF STRATEGY

8. FALSE-ECONOMY STRATEGY

9.ECONOMYSTRATEGY

MEDIUM

LOW

FACTORES AFFECTING PRICING DECISION For the remainder of this tutorial we look at factors that affect how marketers set price. The final price for a product may be influenced by many factors which can be categorized into two main groups: Internal Factors - When setting price, marketers must take into consideration several factors which are the result of company decisions and actions. To a large extent these factors are controllable by the company and, if necessary, can be altered. However, while the organization may have control over these factors making a quick change 

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is not always realistic. For instance, product pricing may depend heavily on the productivity of a manufacturing facility (e.g., how much can be produced within a certain period of time). The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product’s price. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time.  External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market. 

Pricing in Different Types of Markets Monopolistic Competition: Pure Competition: Many buyers and sellers Many buyers and sellers trade over a where each has littlewho effect on the going market range price of prices

Pure Monopoly: Market consists of a single seller

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Cost-Plus Pricing • Adding a standard markup to the cost of the product. • Popular because: – Sellers more certain about cost than demand – Simplifies pricing – When all sellers use, prices are similar and competition is minimized – Some feel it is more fair to both buyers and sellers

Competition-Based Pricing • Going-Rate Pricing: – Firm bases its price largely on competitors’ prices, with less attention paid to its own costs or to demand. • Sealed-Bid Pricing: – Firm bases its price on how it thinks competitors will price rather than on its own costs or on demand.

INITIATING AND RESPONDING TO PRICE CHANGES: Companies often face situations where they may need to cut or raise prices. INITIATING PRICE CUTS: Several circumstances might lead a firm to cut prices one is exceed plant capacity: the firm needs additional business and cannot generate it throw increased sales efforts, a product importance, or other majors. It may resort to aggressive pricing, but in initiating a price cut, the 30

company may trigger a price war. Another circumstance is declining market share. A general motor, for examples, cuts its sub-compact car prices by 10 percent on the west coast when Japanese competition kept making in roads.

Price cutting strategy involves possible traps: *Low quality trap: Customer will assume that the quality is low *Shallow-pocket trap: The higher price competitors may cut their prices and may have longer staying power because of deeper cash reserves. INITIATING PRICE INCREASES: A successful price increase can raise profit considerably for example: if the company’s profit margin is 3 percent of sales, 1 percent price increase will increase profit by 33 percent if sales volume is unaffected. A major circumstance provoking price increases is cost inflation .rising cost unmatched by productivity gains squeeze profit margin and lead companies to regular rounds of price increases. Companies often raise their price by more than the cost increases ,in anticipation of further inflation or government price control, in a practice called anticipatory pricing.

REACTION TO PRICE CHANGES: Any price change can provoke a response from customers, competitors, distributors, suppliers and even government. CUSTOMER REACTION: Customer often question the motivation behind price changes, a price cut can be interpreted in different ways : The item is about to be replaced by a new model ; the item is faulty and is not selling well ; the firm is in financial trouble ; the price will come down even further ; the quality has been reduced. The price increase, which could normally deter

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sales, may carry some positive meaning to customers: the item is “hot” and represents and usually good values. COMPETITORS REACTION: Competitors are most likely to react with the number of firms are few, the product is homo-genius and buyers are highly informed.

RESPONDING TO COMPETITORS PRICE CHANGES: How should a firm respond to a price cut initiated by a competitor? In markets characterized by high product homogeneity, the firm should search for ways to enhance its augmented products. Market leaders frequently face aggressive price cutting by smaller firms trying to built market share. Using price, FUJI attracts KODAK, BIC attract GILLETE, and COMPAQ attract IBM. Brand leaders also face lower priced private-store brands. The brand leader can respond in several ways: 





Maintain price: A leader might maintain its price and profit margins, believing that (1) it would lost too much profit if it reduces its price (2) it would not lost much market share, and (3) it could regain market share when necessary. Maintaining price and add value: The leader could improve its products and services, communication. The firm may find it cheaper to maintain price and spend money to improve perceived quality then to cut price and operate at a lower margin. Reduced price: A leader might drop its price to match the competitors price. It might do so because (1) its cost falls with volume ,(2) it would lost market share because the market is price sensitive, (3) it would be hard to rebuild market share once it is lost. This action will cut profit in the short-run.

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Case Study Analysis on ‘Pricing Strategy of NOKIA’ History and growth of mobile phone industry in India The real transformation came in the scenario of Indian telecom industry after announcement of National telecom policy in 1994. The mobile services were commercially launched in India in August 1995. In the initial 5–6 years the average monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2 million per month in the year 2003-04 and 2004-05. In the last few years there has been a huge exponential growth with addition of about 10 to 15 million subscribers per month to customer base. In the initial days of mobile phone in India in mid 1990‟s the grey market accounted for 80 per cent of the mobile phone sales due to a huge price differential between the legally imported and the grey market phones. Even as the government slashed the duties at the same time various mobile manufacturers reduced their rates to induce the customers to buy a phone from authorized phone shop. Today the grey market comprises very small share of market. When mobile phones were introduced in India in the mid-90s, US based Motorola, Sweden's Ericsson and Finland's Nokia dominated the handset market in India. Over the years, the old order has changed today players like Samsung, LG, Apple, Virgin, HTC, Huawei, Haier are all competing for a place in the market. Apart from this there is also a competition from imported unbranded Chinese mobiles which are avaible with lot many features of a typically high end say Nokia mobile but, at a substantially lesser price. After the initial dominance of Nokia from 1990‟s till 2002, a 33

change occurred in Indian market hen CDMA technology was launched in the year 2003. At this point the Korean brands namely Samsung and LG established themselves after they tied up with CDMA operator Reliance Infocomm. This was a breakthrough in India’s mobile phone industry since, people were able to get mobile phones with Reliance connection only for a initial cost of about Rs. 500/-. This opened up a mass market for mobile manufacturers in India.Gradually all the major players like Nokia, Motorola came up with their CDMA models and have been able to regain their market share. In the last few years India has witnessed a revolution in mobile phone market with about 8 to 10 million subscribers being added to the customer base each month. The major reasons for this boom have been: 1. Falling tariff rates of telecom service providers . 2. Fall in the prices of mobile handsets. 3. Increase in the reach of service providers covering ever nook and corner of the country.

Scenario of Mobile phone industry Following are the highlights of mobile phone industry in India as on December, 2009: 1. The penetration of mobile phones stands at about 30%. 2. 81% of mobile users are in urban area. 3. India’s rural teledensity stands at about 12.6% 4. India has about 517 million subscribers by December, 2009. 5. It is forecasted that sales of mobile handsets in rural India will grow at CAGR of around 17% from 2009 to 2012 Above figures clearly indicate that although mobile phones might have made significant inroads into the urban market & urban market may start moving towards saturation but, still lot of potential is to be explored in the rural segment Also to understand the satisfaction level which users of above brands express, we look at a consumer satisfaction survey, the results of which are shown below.The survey was done on Indian Urban mobile phone users with Sample size of N=5,775. Models LG

Users Likely to recommend 57.6% 34

Motorola Nokia Samsung Sony-Ericsson

41.0% 68.6% 55.7% 65.3%

The result shows Nokia users are the most satisfied with their product followed by Sony-Ericsson and LG. The results of above survey are important since, mobile phone is a device which is frequently replaced in few years time, so, the brand which provides maximum satisfaction to users will be able to maintain high loyalty and hence, maintain its market share. A segregation of Indian market on the basis of price bands is shown below. We can see that mobile phones are available in various price bands from Rs. 2,000/- & less up to Rs. 50,000/-

A close study of the product offered by various companies reveals following: 1. Companies like HTC, Apple, Vertu have products only for the high end market of Rs. 15,000/- and more. 2.On the other hand there are players like Usha lexus whose product fall in the lower category with their products being available in price range of minimum of Rs. 1,900/- to maximum Rs. 5,900/-. Also, Virgin mobile falls in the same category.

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3. Players like Onida have mobiles in lower prices (Rs. 2,000/-) to middle price range (till Rs.9, 900/-). 4. Players like Motorola, Nokia, LG and Sony Ericsson have mobile phones avaible in all different price range and hence, are able to target all the different segments of the market.

Nokia, as a manufacture of mobile communication devices, was succeeded in administrating marketing strategies in India markets. The reason is that Nokia delivers better products which cater to the needs and preferences of Indian consumers.

NOKIA - MADE IN INDIA– A DETAILED ANALYSIS In April 2005, Nokia India, a subsidiary of Finland-based Nokia, announced that it was setting up a manufacturing facility for mobile devices in Chennai, the state capital of Tamil Nadu in southern India. Nokia planned to invest US$ 100-150 million in the facility, where the production was expected to begin in the first half of 2006. Pekka Ala Pietilä, President and Head of Customer & Market Operations, Nokia Corporation said, “Establishing a new factory in India is an important step in the continuous development of our global manufacturing network.”4 India was ideal for Nokia's new production facility. Each mobile handset has more than 400 parts and the average production capacity of each manufacturing unit of Nokia is around 20 million units. This level of manufacturing involves a total of 8 billion components per annum, requiring strong logistical support. Nokia's manufacturing facility needed to be located close to a major international airport or sea port for quick supply of components. India met all these requirements, and also enjoyed cheap manpower costs and proximity to the rapidly growing Asia Pacific markets. Besides, Nokia was the market leader in mobile communication devices in India. The company has been carrying out sales & marketing, customer care and research & development activities in the 36

country. Nokia considers India to be one of its most important markets. The company's Code Division Multiple Access (CDMA) 5 facilities is located in Mumbai and provides software and technical support to CDMA consumers in India and other Asia Pacific countries. In 2004, Nokia was chosen as “the most respected consumer durables company” by Businessworld6. The magazine wrote, “This Finnish Company’s debut at the top of the heap says two things. One, that its strategies - including ones like developing a phone specifically for India - are respected. But, more importantly, Nokia's win is also an endorsement of the importance of the ubiquitous cell phone as a durable in today's world. After all, unlike its competitors, most of which offer a slew of durables, Nokia is mostly a cell phone company.” In 2005, Nokia was recognized as the „Brand of the Year by the Confederation of Indian Industry, India's apex industry association. The company was chosen for this award because of its high brand recall, well established distribution channels and being 'most preferred' by the consumers.

ABOUT NOKIA Nokia was founded in 1865 by Fredrik Idestam in Finland as a paper manufacturing company. In 1920, Finnish Rubber Works became a part of the company, and later on in 1922, Finnish Cable Works joined them. All the three companies were merged in 1967 to form the Nokia Group. In the late 1970s, Nokia started taking an active interest in the power and electronics businesses and by 1987, consumer electronics became Nokia's major business. Nokia created the NMT mobile phone standard in 1981 and launched the first NMT phone, Mobira Cityman, in 1987. The company delivered the first GSM network to Radkilinia, a Finnish company in 1991, and in 1992, Nokia 1011 – a precursor for all Nokia's current GSM phones was introduced. In the 1990s, Nokia provided GSM services to 90 operators across the world. Another significant move of the company during this period was the divestment of its non-core operations like IT. The company focused on two core businesses – mobile phones and telecommunications networks. Between 1992 and 1996, the company exited from the rubber and cable businesses as well... Nokia entered the Indian market in 1994. The first ever 37

GSM call in India was made on a Nokia 2110 mobile phone on its own network in 1995. When Nokia entered India, the telecom policies were not conducive to the growth of the mobile phone industry. The tariffs levied on importing mobile phones were as high as 27%, usage charges were at Rs.16 per minute and, at these high rates, consumers did not take to mobile phones. Nokia also had to face tough competition from other powerful global players like Motorola, Sony, Siemens and Ericsson... Nokia was quick to learn from its mistakes and adopted strategies to regain its lost market share. Globally, during the first quarter of 2005, the company's sales reached 7.4 billion euros, with the company selling 54 million phones during the period. In India, Nokia continued its leadership in GSM with a market share of 74% in March 2005. Nokia also surpassed Samsung in color mobiles in the GSM segment, recording a share of 55% in the same month Nokia reorganized itself at the global level in 2004. At this point, a multimedia division was formed. The division's Indian operations concentrated on promoting the concept of high- end telephones in smaller towns while going in for higher volumes in larger cities. The marketing division of the company concentrated on making distributors in small towns sell high-end products. Though, the distributors were skeptical to startwith, by the end of 2004, the process was streamlined and the results started to show.

MARKET SEGMENTATION There are different types of mobiles for different needs of an individual. Nokia targets the entire segment with his variety.  Top Segment----------------Classy Products  Middle Segment-----------Best alternative  Low End Segment---------High Tech Product at Low Price

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PRICING STRATEGY OF NOKIA SKIMMING PRICING: Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first and then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price. Price skimming is sometimes referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus. If this is done successfully, then theoretically no customer will pay less for the product than the maximum they are willing to pay. In practice it is impossible for a firm to capture this entire surplus. Nokia applies skimming strategy with all the products. Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. They form the bases for the exercise.

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CONCLUSION The scope of the research paper was to discuss the concept on global communication strategy adopted by various Indian and Global Companies while entering the foreign market. This analysis and discussions has been administered by selecting certain successful foreign Companies from the Fortune 500, 2011 listing and other successful Indian Companies which have made a mark in India and foreign market. This concept and discussion can be extended through primary data collection methods to further strengthen the topic into various dimensions of global, local and global strategic implementation.

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BIBLOGRAPHY REFERENCES: www.google.com www.wikipedia.com www.yahoo.com www.bcg.com www.tutor2u.com www.echeats.com www.knowthat.com 41

BOOKS: Principles of marketing (Gary Armstrong and Philip Kotler 10th edition) Marketing Management (Philip Kotler 11th edition)

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