Nike cross fit shoes
Pricing strategy is an important factor in business; it plays a main role in creating demand on the market. Price is usually set by business to cover all cost spent for creating the product and to maximize the profit. There are several factors that form a price for any product and they can be divided into fixed and variable costs. For instance, costs for materials used in production Nike shoes, wages if the employees are paid for the amount of unites produced and utilities are variable costs as these expenditures vary with output. Fixed costs include machinery that is used for production, rent, salaries etc (“Variable Costs and Fixed Costs”).
Nike cross fit shoes are made from the firm material because their main purpose is to be suitable for heavy training, including weightlifting. Therefore, the shoe sole must be formidably durable. As marketing survey shows that a person who regularly takes sports, usually is ready to spend $100+ for a pair of sneakers. When it comes to Nike brand, it suffices to say that over the years people have developed loyalty towards the brand and in the most cases they know for what they pay. The prices for Nike production vary in the range starting from $70 up to $200 (Nike Official Website). The price depends on the collection, shoe type, usage purpose.
Price strategic formation is a choice of pricing strategies based on an assessment of the priorities of the company. Each company in the market environment has a lot of options to choose an appropriate pricing strategy. A list of possible strategies also depends on several factors. In order to avoid price abuses against weaker competitors or uninformed buyers, some countries have adopted laws regulating the selection of companies’ pricing strategies. These laws prevent competitors collision, explicit discrimination against certain categories of industrial customers, or attempts to manipulate the competitors. In general, these types of laws provide pure completion and assure that a company’s strategy do not reduce the level of competition if it is not favorable (Tellis, 1986).
At the first stage of forming pricing strategy, the company should collect information about potential buyers, collect information about competitors with a similar product, clarify market strategy, estimate fixed and variable cost, clarify the financial goal for Nike company. Cost estimation includes the determination of the materials needed for production, the level of incremental costs when changing the sales and determine the volume of production that could affect the size of the semi-fixed costs.
Clarification of the financial goals of the company is based on the selection of one of two possible priorities: a minimum income from the sale of the relevant goods (in our case Nike cross fit shoes), or focus on achieving the highest level of profitability (at maximizing the total amount of profit or for-profit, depending on the term and size of accounts payable).
Identification of potential buyers includes identifying factors and assessment of the consequences of their impact on customer sensitivity to price level and forecasting division of customers into groups (segments).
Taking into account all fixed and variable costs for cross fit shoes, let’s assume that the price that covers all expenditures for a pair is $100. In order to make the profit, the company should add 50% and the retail price will be $149. This will be the lower price cross fit shoes can be sold, however, the price at launch for the product can be higher as this product is new and can be sold at $169.
For cross fit shoe distribution, Nike will use its retails and outlet shops. The pairs will be allocated to every outlet in all sizes available: 4.0 - 14.0 for man and 4.0 - 12.0 for women. Nike outlet shops will not add any additional value since the shops itself are the parts of the corporation and all expenditures for wages and renting are already included. Therefore, the price remains unchangeable $169 and can be reduced to $149 after two months.
Conclusion
Pricing strategy requires a thorough approach. For pricing strategy determination, a company should collect information regarding its potential customers, competitors with a similar product, clarify market strategy, estimate expenditures, and clarify the financial goal. The price is influenced by two main costs: fixed and variable: while fixed costs are independent of output, the variable are those, which vary with the output of the product. It has been calculated that price that covers all expenditures for a pair of Nike cross fit is $100. To receive the profit, the company will add 50% and the price will become $149 (-$1 to attract customers). For two months period, the price can be raised by $20 as a launch strategy trick. Nike will distribute its new shoes to brand outlet shops.
References
Nike Official Website http://www.nike.com/
Tellis G. J. (1986). Beyond the Many Faces of Price: An Integration of Pricing Strategies. Journal of Marketing, Vol.50, No 4. 146-160.
Variable Costs and Fixed Costs. Retrieved from http://economics.fundamentalfinance.com/micro_costs.php
