Rohm and Haas - Stages of Pricing
Joan Macey should adopt the following stages with respect to pricing Kathon MWX: 1) select the pricing objectives 2) determine demand 3) estimate costs 4) analyse competitors・ costs, prices and offers 5) select a pricing method, and 6) select the final price.
1. Select the pricing objectives
The pricing objectives included strategic and business level.
At the strategic level, Macey was required to consider Rohm and Haas・s (R&H) overall portfolio. Since Kathon MWX was a high-quality product and had defensive differential advantage (its convenient and safe-to-use attributes), the pricing objective could be premium positioning in a niche sector (the smaller reservoirs) to charge the customers at a high price.
At the business level, it needed to align with the strategic pricing objective. Macey might adopt product-quality leadership as the business pricing objective, which is to charge a high price to cover quality and high cost of R&D for the development of Kathon MWX. Meantime, the cash generated from the business can use for the future innovation in order to keep its desired positioning.
2. Determine demand
The maintenance biocide market was under a monopolistic competition because there were many buyers and sellers trading over a range of prices rather than a single market price. For example, the prices of Tris Nitro ．Sump Saver・ tablets and Dowicil 75 differed significantly. Sump Saver was selling $4.00/pound to distributor and sold to customers for $7.75/pound, while the cost of Dowicil 75 to distributor was $2.34/pound with a resale price of $10/pound. That means Macey could try to develop differentiated offers to attract the small reservoirs users. For example, she could use appropriate marketing mix such as branding, advertising and personal selling to support the pricing objectives (premium positioning and product-quality leadership) to set their offers apart from competitors.
The price of the maintenance biocide was less sensitive because the products were unique and useful comparing to the concentrate biocide products. Also the performance of the substitutes was inferior. Hence, the price-demand relationship was rather inelastic. It was therefore possible to achieve the pricing objectives in the market. However, the nature of the market was highly competitive. The understanding of consumer perception of price and value was essential for pricing. Hence, communication was critical in delivering the product・s high quality matching the pricing to the mind of the prospects.
3. Estimate costs
Macey should estimate costs incurred in producing, distributing and marketing the product. Although the objective was to charge the customer at high price, R&H should impose cost control as a mechanism for funnelling resources into product enhancements and new product development. This could also enhance the pricing objectives through continual product and service improvements and innovations to maintain product superiority and sustain competitive advantage.
4. Analyse competitors・ costs, prices and offers
Macey should analyse and compare the costs, prices and offers with its competitors in order to learn whether R&H was operating a cost, price or quality advantage. Once Macey was aware of competitors・ prices and offers, she could use them as a starting point for its own pricing. The fact that Kathon MWX was better than its competitors (convenient, safe-to-use, and especially compatibility), it could charge more and to position relative to the competition.
5. Select a pricing method
Economic value to customer pricing could be used to offer a route to sustainable competitive advantage by offering the customer better value even at a high price. This would require matching Kathon MWX to the customers・ perceived value through appropriate marketing mix emphasising its superior in end-use value or value-in-use to the competitors・ cheaper product. The effectiveness (dissolve characteristic, perform well against bacteria and fungi, and save-to-use) of the product was the customers・ perceived value.
6. Select the final price
Based on the above analysis, psychological pricing could be used to select the final price. It was likely that the customers in the market would use price as quality signal. Macey could consider the psychology of prices and not simply the economics. So higher-priced biocide could be perceived as higher quality relative to the competition.
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