To secure product sales: Penetration pricing strategy
To secure product sales, Coca-Cola, the company that makes Fanta Soda, uses a penetration pricing strategy. To gain market supremacy and grow its market share, Fanta's prices are set lower than those of its rivals. As a result, the business relies on pricing that is dependent on nearby competition and is competition-oriented. Given the rapid sales of Coca-Cola products, the strategy is effective. The method particularly works well in Africa where there is a very flexible demand for Fanta (Richard, 2015).
Boosting sales through pricing
In order to boost sales, the company has kept pricing low in the sizable middle-class market. The organization focuses on penetrating new markets and ensuring the continuous purchases from existing customers. The approach entails a straight reduction of prices on purchases during a specific period. The company provides the product to the retailer at a lower amount which is sold at a subsidized price to the buyers who purchase at large volumes (Richard, 2015).
Pricing for profitability
Further, the organization focuses on ensuring profitability. One way the objective is realized is by setting prices for Fanta Soda differently based on the geographical location (Richard, 2015). The approach aims at ensuring the company has attained a larger market share and loyal customers. The corporation ensures that customers' expectations on the prices are addressed. Also, customer-based value pricing is the main transformation for Fanta Soda. More specifically, the strategy focuses on the company working together with the customers to assist them in setting pricing to ensure their profitability and efficiency (Richard, 2015). Coca-Cola customers are the main driver of prices and profitability.
Maintaining status quo
Moreover, there are several ways the firm maintains the status quo related to profitability and sales of Fanta Soda. The organization uses a cost-cutting strategy aimed at increasing its profit. The major approach that enables Coca-Cola to attain the objective is commanding higher prices through the development of strategies that ensure successful branding, increasing the market share, as well as maintaining that premium market status even in economic downturns (Richard, 2015). Focusing on branding means increased revenue and solidifying the customer base. The approach is also fundamental as it allows Coca-Cola to successfully sustain its competitive edge. In other words, through various pricing methods, the company has been able to compete with the rivals in the industry effectively. The techniques have allowed Coca-Cola to maintain their status quo for years in the market (Richard, 2015).
Markups
Coca-Cola uses reasonable markup in their Fanta Soda distribution channels. In settling the markup, they consider the distributors and retailers costs and functions. Further, the approach takes into account competitive alternatives and product value (Banutu-Gomez, 2012). However, it is imperative to state that the situation varies based on the power and size of the market. The Coca-Cola's price to the retailers determines the markup and becomes the basis of defining the competition faced by the retailers to identify the fairest markup for the players involved. The Coca-Cola Markup average 20% and does not exceed 30-40% (Banutu-Gomez, 2012). The figure is calculated by dividing the profits by costs. The company considers expenses related to promoting Fanta Soda, inventory risks, and delivery and financing the retailers. Further, the calculation takes into account retailer functions such as buying products, in-store merchandising, delivery to the customers, and handling returns. Coca-Cola retailers have considerably lower cost for performing their functions after purchasing the product, which implies that they need a reduced markup percentage between what they pay and sell Fanta Soda at. The 20% markup is used to cover their costs (Banutu-Gomez, 2012). Additionally, Coca-Cola uses an alternative approach that entails eliminating the middlemen which save the company's markup.
Pricing Flexibility
Discount Pricing
Coca-Cola uses discount and allowance pricing to oversee increased sales of Fanta Soda. To be more specific, the organization applies a discount to the retailers which entails reducing prices at which Fanta Soda is offered to the buyers. The purpose of discount pricing is to increase sales volumes of the product.
Personalized pricing
The Coca-Cola uses personalized pricing in specific channels. The technique entails offering certain retailers the product at a lower price than other customers. For instance, the company used the approach in penetrating the remote areas of Africa where competitors would not consider investing (Robert, 2016). As such, the method enables the corporation to leverage entry into a direct distribution channel and new market share which further increase sales as well as profitability.
Price Negotiation
Coca-Cola also enters into price negotiation with the retailers, especially in regions with a greater number of competitors. The objective and decision depend on the type of buyer, financial parameters, general economic, and market conditions as well as outlooks. The price negotiation allows the organization to identify the most suitable price to sell Fanta Soda (Cui Duenyas & Sahin, 2017). The process aims at establishing pricing markup that is favorable to the manufacturer and retailer, taking into account the underlying market conditions. The strategy had enabled Coca-Cola to make a profit in a specific market in Europe where competitors have failed.
References
Banutu-Gomez, M. B. (2012). Coca-Cola: International business strategy for globalization. The Business & Management Review, 3(1), 155.
Cui, Y., Duenyas, I., & Sahin, O. (2017). Pricing of conditional upgrades in the presence of strategic consumers. Management Science.
Richard, F., (2015). 7 brilliant strategies Coca-Cola used to become one of the world’s most recognizable brands. Business Insider. Retrieved November 18, 2017 from http://www.businessinsider.com/strategies-coca-cola-used-to-become-a-famous-brand-2015-6?IR=T
Robert, F., (2016). Coca-Cola’s clever new trick. Washington Post. Retrieved November 18, 2017 from https://www.washingtonpost.com/news/wonk/wp/2016/02/11/coca-colas-clever-little-trick/?utm_term=.d032bfc56358
