Place (Distribution Strategy) and Promotion

Water Bottling company: Product and pricing

Romeo Joson

Module 3 Assignment 2

Product levels

Thinking of a product, designing it and then finally introducing and selling it in the market isn’t a simple process. It is a continuous process. There are three basic levels at which a product exists.

1. Core level

2. Actual level

3. Augmented level

A product doesn’t exist physically at core level. It is just a concept at this stage. Core level is the level where one just chalks out the features of the product, what will be the competitive edge of the product and how will the product make and sustain its place in the product. Once the manufacturing process completes, the product exists at actual level. Before being able to exist at actual level, the core level product has to undergo certain decisions regarding several aspects e.g. quality, quantity (in some cases), brand, fashion etc. Whereas augmented level is that level of the product which isn’t physical (Friesner, 2014)

In our case, the core level product is to provide clean and drinkable water at economic rates, not only at shops but at the doorsteps of the people as well. The actual level of the product will be the water packed in the bottles. The augmented level of the product in our case will be the bottles of water available at the shops and stores as well as the gallons of water delivered at the doorsteps of the people.

Product life cycle

Each product has a definite life span, after which it becomes redundant or obsolete. For example, there was a time when wired telephones were used all over the world. Then they started becoming redundant and were replaced by chord less phones. Mobile phones replaced chord less phones and now technological advances are leading towards the era where we’ll not see mobile phone in its traditional role. So from being created to being redundant, each product has to pass through different stages which are as follows

1. Introduction

2. Growth

3. Maturity

4. Decline

We’ll now discuss these stages in detail and see how are they related to pricing in general and to our case specifically.

1. Intorduction

Introduction phase of a product is a beginning phase. Branding of the product is accomplished as well as quality is established in this phase. Prices in this phase are either kept such that the product may just be able to penetrate the market or reasonably high so that the product may recover the costs incurred during the development. Distribution is done in a selective manner and promotion is limited to those people, stores and institutions etc. which are potentially quick adopters. The annual bottled water consumption in USA was 9107.3 in 2011 (Rodwan Jr., 2011). This means that daily consumption of bottled water in USA was about 24.95 million gallons. Considering that the increase in bottled consumption was between 2-4% in most of the previous years, we may assume that the consumption of bottled water in 2015 is not likely to exceed 30%.

So we aim to capture the 2% of the US market in the introductory phase. For this we’ll have to keep our daily production between 1500-1700 gallons in normal conditions. The average price of bottled water per gallon was 1.22 dollars in USA in 2013 (Boesler, 2013). Considering the inflation from 2013 till date, we may assume that the average price of bottled water would be 1.30 dollars per gallon in 2015. So to make the price our competitive edge, we decide to keep the price of a single gallon 1.15-1.20 dollars per gallons during the introductory stage. To combat the effects of inflation, we intend to keep the price increase not more than 4-6% per annum during the introductory phase. The introductory phase may last from 1 to 2 years.

2. Growth

During the growth stage the product has lesser risks to face as it has already been consolidated itself in the market. So prices may be increased slightly during this phase and a broader audience may be reached as well by carrying out distribution and promotion at bigger levels than the previous ones. Following these general guidelines for growth stage, we may set our production target to increase by 25% during the growth stage per year, in a compounding manner for first three years of the growth stage. After three years, our annual production of bottled water will be nearly 3100 gallons per day. To align with a pre-supposed increase in demand and production, we may set our annual increase in price to be between 15-20% in a compounding manner, for first three years. So after three years from the start of the growth stage, the price of one gallon of water will be about 2.00 dollars or slightly higher.

3. Maturity

Maturity is the peak stage of a product’s life cycle. Reaching this stage, product’s growing sales start diminishing. We expect that the growth stage will last for at least five years. So at the start of the maturity stage of the product, the price of one gallon of water is expected to be somewhere around 3 dollars and the production is likely to be near 5000-6000 gallons per day. This means that we are expecting the production to increase by 3-4 times within a time span of 7 years. That sounds quite reasonable. This phase (maturity) is the stage where we intend to keep the prices relatively as stable as possible. Our prime focus during this stage will be to maintain the market share in a competitive environment

4. Decline

Decline stage of a product cycle is that stage in which the sales graph keep declining to bottom line and touches it eventually. Once the decline phase is reached, the product may be either reintroduced with improvisations pr lower cost or it may be discontinued by liquidating the inventory left behind. One way to cope with decline stage may be to sell it to some other firm. It is not right for obvious reasons to set the time span of the maturity and decline stage, therefore we have avoided it.

BCG matrix

Above figure represents BCG of our case. We intend to focus primarily on 1 gallon packing. We want to keep the major share of 1 gallon packing of bottled water in our hands. 500 ml bottle will be introduced in such capacity that it may grow in a quick manner but we’ll not be eyeing to capture the major market share as the competition in this category is already tough. We intend to introduce 1 litre packing as well with major market share of this type since there aren’t many bottlers who offer this packing. The least important from the perspectives of both growth and market share is 2.25 litre packing. This will be introduced on a very limited scale and the prime target for this packing will be the medium distance travelers etc. who can’t carry a gallon with them for certain reasons.

Services marketing

Services marketing means the marketing process of a service offered by any business. The necessary characteristic of a service is that it is intangible. In our case, the concerned service may be the sale of bottled water. Our main objective in marketing our service i.e. sales is to increase them as per pre-planned annual targets while maintaining the quality

Price determination and pricing strategies

Pricing is a complex process in itself. If the supplies fail to meet the demands the prices go higher whereas on the other hand the competition between different stake holders forces them to lower the prices as much as possible by keeping their businesses alive. Our prime objective for price determination is to not only penetrate the market from scratch but to consolidate and grow the share of our product in the market as much as possible for as much years as possible. We’ll achieve this through following pricing scheme:

During the introduction phase, our pricing strategy will be chiefly penetrative pricing as discussed before. Penetrating pricing implies introduction of a product or service at low rates so that it may consolidate itself in a highly competitive market by generating fair sales volumes (Pricing strategies, n.d). Once our brand and product is consolidated, we’ll be using differential pricing as well. We’ll do so by providing a little discount to big stores on bulk orders. During later phase of growth stage and initial phase of maturity stage we’ll benefit from the principle of supply and demand as much as possible by remaining competent and affordable enough to stay in business.

References

· Tim Friesner. 2014. Three levels of product. Retrieved from:

http://www.marketingteacher.com/three-levels-of-a-product/

· Jhon G. Rowdan, Jr. Bottled water 2011: The recovery continues. Retrieved from:

http://www.bottledwater.org/files/2011BWstats.pdf

· Matthew Boesler. 2013. Bottled water costs 2000 times as much as tap water. Retrieved from

http://www.businessinsider.com/bottled-water-costs-2000x-more-than-tap-2013-7

· Pricing strategies. n.d. Retrieved from:

http://iust.edu.sy/courses/Pricing%20strategies%20new.pdf

1 lite

1 gallon

2.25 litre

500 ml