full version Pricing Strategies - Dell Essay

Pricing Strategies - Dell

Category: Business

Autor: auto66 31 March 2010

Words: 2227 | Pages: 9

1. Introduction

Pricing strategies usually change as the product passes through its life cycle, because there is constrains on the company’s freedom to price a product at different stage. The purpose of this report is to determine and elaborate the elements in pricing strategies of Dell’s notebook.

2. Key Objectives
Price is the amount of money changed for a product or service, or the sum of the values consumers exchange for the benefits of having or using the product or service (Kotler et al., 2003, p.332).
Historically, prices were determined through bargaining or negotiations between buyers and sellers. Different prices were set based on the buyer needs and bargaining skill. The establishment of one price for every customer is relatively new phenomenon that came about with the rise of retailers but price still remains a major factor in affecting consumer buying decisions. In addition, it is the most flexible of those components. The ability of price to affect consumer decision and its flexibility makes pricing strategies important in meeting Dell’s objectives in a competitive environment. The main objective of Dell is to produce the low price and profitable notebook for the customer.
For Dell Company, all the prices that they sell are posed to the internet and they usually based on the e-commerce market. The main reason for successful pricing strategy is having a reasonably accurate idea of supply and demand. Too high a price and demand fall as less buyers purchase the product. Too low a price can increase volume of sales but reduce margins profit. So, Dell has aimed for the e-commerce which is the multiple markets operates at different times of day and may interact or affect each others.
Dell Company had set different types of price based on the home user, small business user and medium or large business user. The pricing structure changes as the products move through their life cycle. The company also always changing costs to make sure that they are still able to survive in the competitive environment. From there we can see that Dell company success to do that especially they can provide any prices and products that the consumers’ wants although promote and sell their product through the Internet.



3. Desired Positioning/Implication

a).Positioning

Product positioning is the way the product is defines by the important attributes. In other words, it is how the consumer recognizes the product. Some of the positioning strategies are on product attributes, need that consumer feel or the benefits, usage occasion, class of users, against competitor, away from competitor and different product class (Kotler et al., 2003, p.233). The strategies that Dell is currently using are positioning against competitor. They introduce attracting price for their product, which they positioned each other as the product were similar (http://www.wi-fiplanet.com/) to the product produced by other producer like Sony and IBM. Dell also positioned itself as the lowest price consumer notebook maker.

b).Competitive Advantages

The competitive advantage that allows Dell to successfully position itself is because of certain factors. The factors are Dell provide e-commerce or online order/payment services while its competitor were trapped with their traditional off-line channel partners because most of the resources comes from there (http://www.webstyler.it/). Dell also provides a unique direct-model where they customize product base on the customers need. This enable Dell to produce at lower cost as its inventory level are low as they built after order (ibid). Furthermore, Dell also provides excellent service to its customer by provide call-in services to maximize customer satisfaction.

4. Competitive Situation/Effect on price

External factor affecting a company’s decisions is competitors’ prices and their possible reactions to the company’s own pricing moves. A consumer considering buying an seemly price

a).Pricing Decisions

No matter enter a brand-new market, or should capture greater market share, the price is one of the most important aspect. About all Dell's advertising, show the purpose and no more than the selling price with outstanding focal point most, or favorable range , still prove adding within a definite time period.

b).Adopting the competitive price strategy

Secondly, Dell adopting the competitive price strategy, namely not the blind entering the market at a low price, but different from the customer according to the rival, market conditions, make different competitiveness prices separately. For example;
On the webpage that is set up for the small business specially, the note-book computer pricing of a Latitude l400 is $2307, on the webpage that is set up for health care enterprises specially; its price is $2228, cheaper by 3% than that of the price displayed on the web, while the price offered to the government is $2072.
In actual sale, it can also follow the rival and market situation , adjust the price at any time, even can change the price two times in one day, and the purpose is for keeping the long-term advantage at this kind of price.



c).The third characteristic

The third characteristic of Dell’s offers free appreciation service with the thorough after-sale service. For example; DELL stipulates that can upgrade the hard disk, get the sharp alliance Z605 printer free while buying and appointing the model, obtain value RMB620 big gift bag of free, upgrade the liquid crystal display and wait at the preferential prices, these very practical favours, have very strong appeal and agitating .

5. PRODUCT –MIX & SERVICE-MIX PRICING STRTEGIES

Dell’s company use product and service mix pricing strategies to attract customers. This can help the firm to earn profit at the most efficient way. It is not an east task for a company to stick to a fix price when there are too many competitors in the same field.
There are five kind of product and service mix pricing strategies namely Product/service line pricing, Optional product/service, Captive product/service, By-product pricing and Product/service bundling pricing. Dell notebook can be consider as product/service bundle pricing.
1. Product/service line pricing- setting price steps between product/service line
item.
2. Optional product/service-setting a price where accessory product/service are
sold with the main product.
3. Captive product/service- pricing another product that must be use together with
the main product.
4. By-product pricing- pricing the waste of a product at lower price to get rid of it.
5. Product/service bundle pricing- pricing the product and service together at a
lower price




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6. Internal and external pricing factor/affect on pricing structures

Focus on the factors affect the dell’s pricing structure, there are two factors included: one is internal factor and the other is extend factors. There are 3 internal factor that affect Dell’s pricing: marketing objectives, marketing-max strategy and organizational. From the marketing objective, survival is the first main point. Through the consuming competition, every company considers survival as a first main point. Dell is in the same situation.
a). Survival:
Dell’s notebook has reached its target successfully, because the business structure runs very well. It is one of the best successful companies in the world by the outstanding operational. The survival is focused on improving the structure of the company and defending the competitors which against the company. In order to defend themselves from the competitors, the way for Dell to survival is set the lower price with same capability. For example: compare the notebook of IBM and DEL, they have the same capability but the price is different. For IBM ThinkPad g Series, it sells $799 and compare to the with Dell’s notebook, the price is lower, for this satiation, we can find that Dell is focus more on setting low price for survival.
b).Current profit maximization:

Every company wants to set a price that can maximize its profit. Dell is famous for its low price and high capability. Dell has the advantage to set a befitting price. Dell estimates the demand and supply will let the company choose befitting price. Dell is more volume oriented as they aim to sell more of its product to maximize their profit.

c).Market share leadership

Nowadays Dell is one of the largest companies is the world. It based on it’s cosmically factories spread all over the world, Dell has the market leadership. Dell’s notebook is sold with a lower price equipped with high capability compare other brands. Because in order to be a market leader the only thing need to be done is set the price as low as possible. Dell has followed this fundamental and has achieved the market share leadership.

d). Cost

Variable cost: Variable Costs are the costs which change in proportion in order to change the level of production, such as materials usage, current labors, transportation fees, and utilities for a warehouse (http://www.entrepreneur.com/). The large amounts of notebook are produced, the variable cost eventually become more. The variable cost is based on the productions: produce more the variable cost getting more.

e). Fixed cost

The costs do not vary with production or sales level. For example, the company has to pay the bills each month for rent, heat interest and executive salaries. Dell company producing notebook has its fix cost, such as executive salaries, air-condition bill, electricity fees and so on. This factor also affects the pricing structure.

f). Total cost

Total cost is the sum of the fixed and variable costs for any given level of production of the company. A pricing of a product are determine by the total cost, where a higher total cost leads to a higher price. This is the most important factor in determining the price of a product. Dell always aware of the price and some other factor more of its competitors to produce and sell its product.

g). Pricing in different types of markets

Notebook goes more popular in this current society that the notebook companies having the pure competition. More family are willing to buy the notebook instead of desktop and Dell follows this way to set a basic price on its notebook to attract their consumers. Dell is the second largest company of selling notebook; Dell’s price of notebook compare with HP still has its advantage, because Dell’s price is lower then HP and the capability between them are the same.



h). Consumer perception of price and value

The perception of price and value of consumer affects the pricing structure. The company must consider consumer perceptions of price and how these perception affect consumer’s buying behavior. Dell notebook is one of the most attracted products that consumer willing to buy. Dell always follows the considerable price for their consumers with high capability.

i). Competitor’s prices and offers

This is a factor affecting a company's pricing decisions is competitor’s process and their possible reactions to the company’s own pricing moves. The most competitive company for Dell is Acer. Acer’s notebook is always in a low price position in the market. Especially common notebook for Dell’s competition between them is very vehement.

7. Conclusion

As a whole, elements such as key objectives of pricing, product positioning, competitive situation, internal and external factor and lastly product/service mix strategies has to be taken into consideration before a price of a goods or services is to be determined.








Reference List

Book

• Kotler, P., Stewart, A., Brown, L. and Armstrong, G. (2003). Principles of Marketing, 2nd Edition, Prentice Hall, Australia, ISBN: 1-74009-811-0, p.233

World Wide Web

• Retrieved: September 9, 2004, from http://www.wi-fiplanet.com/news/article.php/307012
• Retrieved: September 9, 2004, from http://www.webstyler.it/genone.php?id=107&tipo=tut&settore=mk
• Retrieved: September 9, 2004, from http://www.entrepreneur.com/article/0,4621, 265229, 00.html