Milestone 6

docx

School

Southern New Hampshire University *

*We aren’t endorsed by this school

Course

500

Subject

Marketing

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by amyr0823

Milestone Six Assignment Amy Richard Southern New Hampshire University MKT 500: Marketing Strategies Professor Tina Brown October 27, 2023

The Model F is priced at $74,500. With the Model F’s high technology and innovation, the Model F is priced accurately so. When making a new product, there are so many different expenses that come into play. There are raw-material costs, labor costs, design costs, transportation costs, sales tax, and so much more. Although a $74,500 vehicle seems like a large expense, the price will allow reasonable profit in accordance with my profitability strategy. The profitability strategy I have selected for the Model F is cost-based pricing. “Cost-based pricing involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for the company’s effort and risk” (Armstrong & Kotler, 2023, p. 273). I have chosen a cost-based pricing strategy because it will always create a profit for Tesla and is simple to implement. By utilizing a cost-based pricing strategy, Tesla can ensure production and overhead costs are covered and will always be covered even if costs were to rise. Tesla also will be more likely to build trust with their customers as the cost can be proven and understood. The Model F is priced at $74,500 because the average cost to produce a car is roughly 90% of its retail price (Kusic, 2022). It costs $67,000 dollars to make a Model F. The only downfall of cost-based pricing is it disregards demand. If there is a greater want or need for a Model F and another pricing strategy was chosen, Tesla would be able to increase the Model F cost appropriately to receive a greater profit. Many automotive companies use a market-oriented pricing strategy. This includes one of Tesla’s top competitors, Ford Motors Company (Shah, 2021). “Market-based pricing is when a price of a product is set according to current market prices for the same or similar products. In other words, market-based pricing means setting prices in line with your competitors and the prices of their products” (Campbell, 2020). Although many may feel a market-based pricing strategy is effective, it is not efficient. Companies who use this pricing strategy copy their

competitors' prices. This causes many companies to end up with the same clientele as their rivals. Instead, they should be aiming to develop a new clientele. Although the price may be appealing to customers, Ford Motors’ prices are constantly fluctuating because they are based off the market and demand. This does not allow a steady income for the company or any company who uses market-oriented pricing. By using cost-based pricing, Tesla will be ensured that they will receive a decent profit from each Model F sale. “Fixed cost refers to the cost of a business expense that doesn’t change even with an increase or decrease in the number of goods and services produced or sold. Fixed costs are commonly related to recurring expenses not directly related to production, such as rent, interest payments, insurance, depreciation, and property tax” (Hayes, 2023). “A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company's production or sales volume—they rise as production increases and fall as production decreases” (Kenton, 2023). Together, they are the total cost of making sales and maintaining a steady business. My pricing strategy, cost-based pricing, will allow for sufficient profitability that will cover both essential fixed costs and variable costs. Regardless of how much the Model F costs to make, the product will always be listed 10% more than its total cost. For example, in 2025, it may cost $72,000 to manufacture, distribute, and sell a Model F. This just means the Model F will be priced at $80,000 to ensure the 10% profit margin for Tesla. My target market would be city-living individuals of the middle to upper class who are in their late forties to early sixties, business professionals, tech-savy, and ecofriendly. My proposed price, $74,500, fits into this target market perfectly. On average, the middle class makes around $52,000 to $156,000 per year and the upper class makes more than $156,000 per year (Koop,

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

2022). This, of course, fluctuates with multiple factors like household size and location. When you take out the expense of gasoline, many would agree that a $74,500 vehicle is affordable and reasonable for those of the middle to upper class. Like Tesla, I plan to use a direct distribution channel. A direct distribution channel delivers goods straight from a company’s online e-commerce or straight from a company physical store (Tesla Distribution Strategy, n.d.). By using a direct distribution channel, Tesla avoids the cost of hiring a middleman while having total control of the delivery process to ensure customer satisfaction. Furthermore, with a direct distribution channel, Tesla can create strong relationships with customers by responding to customer feedback and product performance reviews. I believe that a direct distribution channel is the most effective and efficient way to deliver goods even though it may add more stress and is often more time-consuming and costly for business owners. The results of utilizing a direct distribution channel are often well worth it.

References Armstrong, G., & Kotler, P. (2023). Marketing: An introduction. Pearson. Campbell, P. (2020, February 19). What is Market-based Pricing: Advantages & Disadvantages [+Examples]. ProfitWell. https://www.profitwell.com/recur/all/market-based- pricing Hayes, A. (2023, July 6). Fixed Cost: What It Is and How It’s Used in Business. Investopedia. https://www.investopedia.com/terms/f/fixedcost.asp Kenton, W. (2023, April 26). Variable Cost: What It Is and How to Calculate It. Investopedia. https://www.investopedia.com/terms/v/variablecost.asp Koop, A. (2022, July 6). The one chart you need to understand how income is distributed in the US. World Economic Forum. https://www.weforum.org/agenda/2022/07/household- income-distribution-wealth-inequality-united-states/ Kusic, L. (2022, December 11). How Much Does It Cost to Make a Car? (Manufacturing Cost Breakdown). Vehicle Freak. https://vehiclefreak.com/how-much-does-it-cost-to-make-a- car-manufacturing-cost-breakdown/ Shah, F. (2021, September 3). Marketing Mix of Ford Motor Company (4Ps of Ford). Howandwhat. https://www.howandwhat.net/marketing-mix-ford-motor-company/ Tesla Distribution Strategy. (n.d.). FourWeekMBA. https://fourweekmba.com/tesla- distribution-strategy/

Related Documents

Report (13).docx

Screen Shot 2024-02-08 at 5.35.34 PM.png

McDoland.pdf

SWOT.docx

Milestone 7_ Distribution Channel.docx

Milestone 8.docx

Milestone 3 INT640.docx

Bus 433 Paper (Integration of Learning).docx

D177 task2.docx

Asssess4 Global Strategy REFLECTION .docx

Chapter 15 Assignment Kavya Shah.docx

Chapter 14 Assignment Kavya Shah.docx

Recommended textbooks for you

Practical Management Science

Operations Management

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:Cengage,

Marketing

ISBN:9780357033791

Author:Pride, William M

Publisher:South Western Educational Publishing

Purchasing and Supply Chain Management

Operations Management

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Cengage Learning

MARKETING 2018

Marketing

ISBN:9780357033753

Author:Pride

Publisher:CENGAGE L

SEE MORE TEXTBOOKS

Recommended textbooks for you

Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Marketing
Marketing
ISBN:9780357033791
Author:Pride, William M
Publisher:South Western Educational Publishing
Purchasing and Supply Chain Management
Operations Management
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Cengage Learning
MARKETING 2018
Marketing
ISBN:9780357033753
Author:Pride
Publisher:CENGAGE L