Missouri S&T Cereal Company is entering an oligopoly market in Hamburg, Germany with 3 existing and 3 new competitors. To differentiate itself, the company will target a niche market with unique cereal varieties and standard packaging. It will use skimming pricing for independent stores and cost-plus pricing for grocery chains. The company follows ABC costing and its major costs are advertising (fixed) and packaging (variable). The proposed prices are slightly higher than competitors to maximize profits for market expansion.

1. JAY MODI
Marketing
Missouri S&T Cereal Company
Marketing View for Product Costing and Pricing Case Report
Business 423
Prepared by:
Jay Modi
March 9, 2008
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2. JAY MODI
Marketing
Missouri S & T cereal is in the market where there are three existing competitors
(Company X, Company Y, and Company Z) and three new competitors. The demand for
cereal in Hamburg, Germany is moderate and the number of customers in the market is
few. As the products will be differentiated so entry and exit for the firms will be difficult.
Even most of the firms in the market are interdependent in fixing the price in order to
accrue greater revenue and market share. Adding to it there will be usual information to
buyers and sellers about the product. So after taking into all this points Missouri S & T
cereal found itself in the Oligopoly market.
As there are few competitors in the market, our company is going to target the ‘niche’
market by offering the unique variety of cereals with different product mix. Several other
reasons which make our company competitive are:
• Skimming Price-- Our target market is ‘niche’ market, so we are charging little
higher price than our competitors. The details of Missouri S & T cereal’s price as
compared to competitor is in appendix 1.
• Standard packaging—Even our company has invested higher amount for
packaging the products. It will help the company to position its product and
differentiate the same from the competitor.
Based on the new information available our company has proposed several additional
business strategies which include:
• Higher pricing than competitors: As we are charging the skimming price in
Independent stores where customers are less price sensitive, so our price will be
little higher than the competitors.
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3. JAY MODI
Marketing
• Unique price for each distribution channels: our company is offering skimming
price for Independent stores and Cost-plus pricing for Grocery chains.
• Our main focus is on Grocery stores it has almost half of the market share and
offers cereals in both the quantities. Even the reaction of customer towards price
and advertising is neutral we are flexible to change the price based on the market
demand.
PRODUCT COST STRATEGIES
Our company is following ABC costing. If we focus towards the marketing side, there are
two major cost drivers in the product cost; Advertising and Packaging.
• Advertising: - The advertising cost is fixed cost for all the products as in the
single ad we are going to advertise all our three products.
• Packaging: - The packaging cost is variable as the type of packaging done for
Strawberry flavor differs from the packaging of Nuts and Raisin flavor.
PRODUCT PRICING STRATEGIES
The pricing strategy followed by our company is different for both the distribution
channels.
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4. JAY MODI
Marketing
Quality
Low High
L Cost-plus
o
w
P
Grocery Chains
r
i
c
H
Skimming
e
i
g
Independent Stores
h
PRICING STRATEGIES MATRIX
Our company is going to follow the skimming pricing strategy for Independent stores
because of several reasons like:
• Demand of our product in Independent grocers will be inelastic as customers are
less sensitive to price.
• Our company does not have the resources to finance the large capital
expenditures, so skim pricing is the right choice for profit maximization which
can be used to carry high volume production.
Our company is going to follow the Cost-plus pricing strategy for Grocery chains. In this
method our company arrived to selling price by the percentage of profit with the cost of
producing the product. Our company is going to follow this strategy for Grocery chains
because it is enjoying several benefits like:
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5. JAY MODI
Marketing
• Demand of our product in Grocery chains will be elastic as customers are high
sensitive to price.
• As we are offering both, large and small box to Grocery chain so it will be easy to
determine the price.
PROPOSED PRODUCT PRICE FOR DISTRIBUTION CHANNELS:
INDEPENDENT GROCERS GROCERY CHAINS
Large Box (€) Small Box (€) Large Box (€) Small Box (€)
Strawberry X 5.02 X 4.78
Nuts 5.99 2.99 5.55 2.79
Raisin 5.94 2.96 5.63 2.81
As our company is targeting the ‘niche’ market, so our prices are little high than our
competitors and by adapting different pricing strategy for both the distribution channels
we are focusing towards higher market share. We have taken into consideration various
internal and external factors while determining the pricing strategy. Our internal factor
includes marketing mix (4Ps), marketing objectives and total costs while an external
factor includes competitors pricing strategy, customer’s value to the product and
Government regulations.
Reference:
http://www.netmba.com/marketing/pricing/
http://www.marketingteacher.com/Lessons/lesson_pricing.htm
Principles of Pricing – Robert Dolan, John T. Gourville, Harvard Business School
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