JAY MODIMarketing

Missouri S&T Cereal Company

Marketing View for Product Costing and Pricing Case Report

Business 423

Prepared by:

Jay Modi

March 9, 2008

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Missouri S & T cereal is in the market where there are three existing competitors

(Company X, Company Y, and Company Z) and three new competitors. The demand for

cereal in Hamburg, Germany is moderate and the number of customers in the market is

few. As the products will be differentiated so entry and exit for the firms will be difficult.

Even most of the firms in the market are interdependent in fixing the price in order to

accrue greater revenue and market share. Adding to it there will be usual information to

buyers and sellers about the product. So after taking into all this points Missouri S & T

cereal found itself in the Oligopoly market.

As there are few competitors in the market, our company is going to target the ‘niche’

market by offering the unique variety of cereals with different product mix. Several other

reasons which make our company competitive are:

Skimming Price-- Our target market is ‘niche’ market, so we are charging little

higher price than our competitors. The details of Missouri S & T cereal’s price as

compared to competitor is in appendix 1.

Standard packaging—Even our company has invested higher amount for

packaging the products. It will help the company to position its product and

differentiate the same from the competitor.

Based on the new information available our company has proposed several additional

business strategies which include:

Higher pricing than competitors: As we are charging the skimming price in

Independent stores where customers are less price sensitive, so our price will be

little higher than the competitors.

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Unique price for each distribution channels: our company is offering skimming

price for Independent stores and Cost-plus pricing for Grocery chains.

Our main focus is on Grocery stores it has almost half of the market share and

offers cereals in both the quantities. Even the reaction of customer towards price

and advertising is neutral we are flexible to change the price based on the market

demand.

PRODUCT COST STRATEGIES

Our company is following ABC costing. If we focus towards the marketing side, there are

two major cost drivers in the product cost; Advertising and Packaging.

Advertising: - The advertising cost is fixed cost for all the products as in the

single ad we are going to advertise all our three products.

Packaging: - The packaging cost is variable as the type of packaging done for

Strawberry flavor differs from the packaging of Nuts and Raisin flavor.

PRODUCT PRICING STRATEGIES

The pricing strategy followed by our company is different for both the distribution

channels.

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PRICING STRATEGIES MATRIX

Skimming

Independent Stores

Cost-plus

Grocery Chains

H

i

g

h

Low

Low High

Quality

P

r

i

c

e

Our company is going to follow the skimming pricing strategy for Independent stores

because of several reasons like:

Demand of our product in Independent grocers will be inelastic as customers are

less sensitive to price.

Our company does not have the resources to finance the large capital

expenditures, so skim pricing is the right choice for profit maximization which

can be used to carry high volume production.

Our company is going to follow the Cost-plus pricing strategy for Grocery chains. In this

method our company arrived to selling price by the percentage of profit with the cost of

producing the product. Our company is going to follow this strategy for Grocery chains

because it is enjoying several benefits like:

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Demand of our product in Grocery chains will be elastic as customers are high

sensitive to price.

As we are offering both, large and small box to Grocery chain so it will be easy to

determine the price.

PROPOSED PRODUCT PRICE FOR DISTRIBUTION CHANNELS:

INDEPENDENT GROCERS GROCERY CHAINS

Large Box (€) Small Box (€) Large Box (€) Small Box (€)

Strawberry X 5.02 X 4.78

Nuts 5.99 2.99 5.55 2.79

Raisin 5.94 2.96 5.63 2.81

As our company is targeting the ‘niche’ market, so our prices are little high than our

competitors and by adapting different pricing strategy for both the distribution channels

we are focusing towards higher market share. We have taken into consideration various

internal and external factors while determining the pricing strategy. Our internal factor

includes marketing mix (4Ps), marketing objectives and total costs while an external

factor includes competitors pricing strategy, customer’s value to the product and

Government regulations.

Reference:

http://www.netmba.com/marketing/pricing/

http://www.marketingteacher.com/Lessons/lesson_pricing.htm

Principles of Pricing – Robert Dolan, John T. Gourville, Harvard Business School

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