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Advertisements are inevitable for any business venture. Continuous and consistent advertising helps companies to gain a competitive advantage in the market place. Advertising helps to create a product positioning among the consumers, that is, it helps the customers to have a clear mental picture of the advertising company’s product that is unique compared to the competitors’ products. Advertising helps to increase consumer trust in the products and the services sold, it creates awareness that the products exist, helps the consumer get information about the product, which translates to sales in the market place.
An advertisement campaign is an investment that is long-term in nature, and thus it may take time before a company actually reaps the benefits of an advertisement. A company’s brand is very powerful, much more than even copyrights. Maintaining a brand positioning is inevitable since strong brands are associated with high sales. This means that even companies that have large market shares and established brand should continue advertising and spending more on advertisements if the benefits are to be sustained in the long-term.
A product is an object that one is actually able to demonstrate its features and the various functions it can perform. A service, on the other hand, is an intangible product and in most cases involves an experience which a consumer goes through for a given period of time. When customers buy a service, they rely more on the reputation of the company offering it than the actual performance of the service in question.
One way to market a service is by enhancing and maintaining the reputation of the service to the different customers regardless of the person offering it. While products are tangible, services depend on the way that the customer delivers them. Hence when marketing a service, language and clear-cut communication is vital unlike a product, because a service cannot be returned once delivered. The second difference is in terms of the guarantee. When marketing a product, it is easy to guarantee a customer that it is of the right quality and quantity unlike a service where guarantee is often difficult. The third difference in marketing a product and service is that in marketing a product, it is easy to convince a customer to buy on the basis of price unlike a service, where attaching price becomes a hustle. Services may differ in prices without any justification, but in marketing the service delivery will determine whether the customer will buy from you or not. The marketing of a service depends more on playing around with the psychology of the consumer unlike a product.
Online services such as Amazon.com and Half.com allow customers to buy products such as books and CDs, and other items at a price that is fixed. Online auction sites also help to sell and market certain items that can be collected later by a customer.
Cornerstone is engaging in psychological pricing. Psychological pricing is a pricing strategy that aims at evoking the emotions of the consumers and thus induces them into buying a product or service. Cornerstone has used odd pricing strategy, which is a strategy of psychological pricing, which uses odd numbers such as $95, $99, $10 among others. Although the prices are almost the same, most people associate them as the ones having a discount and thus tend to buy the goods at such a price. The psychological prices have a psychological value attached to it; therefore, buyers in this kind of pricing are assumed that they are not rational and that they will buy a price which indicates value (Bovay, 2012).
According to Authur, (2012), competitive advantage is the ability of an organization to perform better than their rivals in the same industry in the market place. Lowering of prices is a source of competitive advantage, especially to the part of the market segment that is price-sensitive. Consumers will attribute the low prices as savings of an extra dollar, which can be used in the purchase of other goods and services. Lowering of prices is a short-term strategy that is not sustainable in the long term given the uncertainties in the market place. Other competitors might also follow suit and hence deprive the organization of the competitive edge in the market. Hence for the company to focus on a long-term strategy, it must build relationship with suppliers, differentiate the products through advertising and unique product offering as well as investing and implementing technology, which has reduced cost implications in the long term.
The price of Pink Stone Energy (PSE) will be calculated as follows,
Profits == fixed costs-Variable Costs
Fixed costs ==800,000
Variable costs == (400,000*10)
Profit = Fixed costs- Variable costs
= 760,000/400,000 * 150%
For a new product in the market, an organization’s main aim is to gain a market share. Hence pricing a product at a high price may not help achieve this goal. Having a larger market share guarantees profits both in the short and long run. It is therefore important for the organization to conduct adequate market research, use competitive positioning and understand the target market segment prior to attaching any price to a given product (unique app). Hence, pricing the product high may take time for the company to reach break-even (point of no profit or loss). The break-even may even not be realized since customers may shy away from the product. They may be forced to incur even high cost through advertising to push the product off the shelf, which may not make sense in pricing the product highly in the first place.