When you walk into a shopping centre or a retail store what are the features that you consider before buying a product? Must be the necessity of the product, quality and quantity but most importantly the price of the product. No matter if we belong to a high-income group level or middle-income group level we all have our monthly budgets that we want to stick to as majority of the Australian population pays taxes and make their living through jobs.
According to marketing mix theory, Pricing is an essential segment of the marketing mix as it is the only part which helps in recovering all the expenses done during the launch of a product.The rest of the elements costs an organisation.
The pricing part should complement the other three elements of marketing mix.The decision of choosing the correct price can be complicated but it must balance the supply and demand for the product. Too high or too low price of a product can follow early downfall or massive losses in business.
Back in 2008, there was a brand that was languishing behind the brands like BigW and Target. Even though after making a turnover of $4 billion every year KMart was making no profits. On the verge of getting bankrupt, ex-McDonald’s Australia chief Guy Russo was finally brought to turn the tables around into the picture and indeed he did turn the tables by only working on the pricing strategy and from Nada went to $289 million EBIT by 2014.
Russo changed KMart into a cut-price chic successful supplier.Kmart has been encompassed as the leading fashion retailer all across Australia now only because of the winning strategy of favourite products paired with every day low prices.He considered all pricing factors to get the final results.
The primary goal of Kmart was to get a breakeven in the business which had not taken place in years. It was the only option they had for the survival of this firm.Profit was essential for status quo and maximisation of market share.
There was an elastic demand for the retail and fashion market where competitors like Target and BigW, who were there to fulfil the market needs for retail fashion. As there were good substitutes available with the competitors, the only way Kmart could gain an advantage in the market was by working on the pricing factor. As price sensitive customers were buying at Kmart, and they made that as a tool to change the perception of the customers towards the brand image.
Kmart moved permanently to low pricing model, where shoppers were moving away from quarterly Sale! concept. Kmart worked on direct sourcing model where it slashed the number of suppliers it was dealing with, it deleted all the middle man and directly contacted the manufacturer which made a humungous difference in the pricing which helped in reducing the variable cost and to some extent fixed cost as well.
The response to the low pricing every day by the key competitor BigW was immediate and they campaigned for low pricing in a similar manner how Kmart did. Target did not work on any such campaigns and still works on Sale concept. But, Kmart price change campaign affected the mental accounting of the consumer and connecting emotionally to them which also reduced the shame and anxiety of purchasing cheaper.
After having an overwhelming response from the mothers and other females in the campaign and overtaking the competitors, Kmart finally dismantled the old ineffective pricing strategy that despite getting a consumer to walk in for discounts made Kmart sell products below their actual cost.The new pricing strategy worked and by 2013 Kmart had 150 more items selling per year in comparison to 2008.: by 2013 Kmart was selling 150 million more items per year than it was back in 2008.
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