There are various management theories that are employed by different organizations in running their daily operation activities. Different management theories can be employed in different departments within the same organization to produce the desired results (Daly, 2002). For example, the management theory used by the human resource department may be different from the strategy used in marketing department, all of them tested to be successful. Employee empowerment is a theory usually employed by human resource departments to improve employee satisfaction and productivity. Penetration pricing theory is also used by marketing and sales departments to gain entry into a particular market, as evidenced by Wal-Mart Inc.
Employee Empowerment Culture
Employee empowerment is the type of management where employees are given authority to think independently, behave, control their work and make autonomous decisions related to their line of duty (Sagie & Koslowsky, 2000). It also includes employee involvement and participation in the management processes, where they are given opportunity to suggest the course of action that the company should take. Empowerment is an appropriate management and organizational style that allows staff to freely use their expertise, skills and abilities to benefit the organization. Implementation of employee empowerment strategy leads to faster response to client needs and service delivery and quicker reaction to disgruntled customers to redeem company image. It also makes employees to have confidence in themselves and to feel motivated in performing their jobs, as well as improving employee customer interaction that builds the image of the company and improve employee team work (Sagie & Koslowsky, 2000).
This empowerment strategy has been employed by Tata American Investment Group (AIG) Life Insurance Company based in India, where sales agents are independently allowed to plan their marketing schedules in relation to when to go for field work to close new businesses or renew expired packages, and when to be in office. This strategy makes them be effective and to surpass the sales targets (Investing.businessweek.com). Empowerment in this case is viewed in terms of fundamental beliefs of the company and personal the orientations. This culture of empowerment and rewards for high performers led to tremendous positive results, when the company realized a net profit of INR 517.9 million with total premium being INR 39.85 billion, out of which INR 13.32 billion was from new business and INR 26.53 from renewed premiums as at March 2011 (Investing.businessweek.com). In case I was among the top human management at Tata AIG Life, I would have employed the same strategy owing to the fact that sales department is the driving force of insurance industry.
The Theory of Penetration Pricing
Market penetration pricing is a pricing theory employed by many companies to secure entry into a competitive market. This is done by setting product or service prizes lower than the market prize to attract more customers and is in most cases combined with consumer inducements to gather market share (Daly, 2002). For example, a company may offer consumers free samples of a product or a service, offer the product at a slightly reduced price, or employ the ‘buy two get one free’ slogan to entice customers. If this strategy is employed in large scale, it can lead to falling costs in the whole industry, and can result in further penetration by further permitting the reduction of product introductory prices into the market. Penetration prices is usually intended to win market share for a short time, then increase the prices later once the company products has established in the market (Daly, 2002). This theory of penetration is also used when a company seeks to realize large revenues through intense promotions. Low prices usually encourage economies of scale, leading to high sales volume. This theory is effective in situations such as when the market is very sensitive to price, since low price encourages market growth; when the cost of production and delivery reduce as a result of amassed production and when a low pricing reduces actual and potential market competition (Daly, 2002).
This theory is usually employed by Wal-Mart discount stores. Wal-Mart operates chains of large discount and warehouse stores and is the world's 18th largest public discount stores corporation. Wal-Mart employ penetration pricing strategy by offering new products at much lower prices than other stores, with an aim of enticing customers to buy more when they visit the store (Hainer & Media, 2011). The stores are prepared to lose money on the new product to introduce the customer to the product, with a hope that more customers will purchase in the long run. Wal-Mart also uses penetration pricing when venturing in new geographic markets to gain market presence in a competitive environment. Once the brand has succeeded in attracting and building a strong loyal customer base, they gradually increase prices to the market value. As a result of this strategy, Wal-Mart reported an increase in net sales by 5.5% to $108.6 billion in the second quarter of 2011 (Hainer & Media, 2011). Penetration price strategy is a long term marketing strategy whose results may be felt after some time.
Management is a very important aspect of company operation. The use of right management theory in the implementation of operations ensures the success of the team. Tata AIG Life used the employee empowerment theory by allow the sales agents to make independent decisions regarding their work schedules favorable to them. This freedom together with the reward scheme led to the increase in new sales and premium renewal. Wal-Mart on the other hand employed the penetration price theory to enter into new markets and to win market shares. This led to increase in sales volumes by 5.5% in the second quarter of 2011 (Hainer & Media, 2011).