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China Glaze is a nail lacquer company founded in 1998 by a global cosmetics firm (Nails Magazine). In 2005, American International Industries purchased the company. The brand is well-known for its inventive displays and the regular introduction of new hues (Nails Magazine). It is one of the world's leading nail polish firms. It states that its goods are devoid of formaldehyde, toluene, and DBP. China Glaze just brought spray nail polish to the market.
The product was introduced to the market in order to reduce the amount of time people spend going to manicures and to help people conduct their manicures at home easily and quickly. The spray-on nail polish came as there was a growing trend to get a perfect manicure. Most of the manicure parlors were expensive and took a lot of the consumers’ time. There were also clientele who wish to do their manicure at home but with a degree of professionalism. The spray on nail polish faces competition from other nail products such as the original paint nail polish and the gel technology.
Pricing Strategy Employed
China Glaze used the penetration structure to set their pricing. They set the price compared to gel nail polish. The company settled for penetration strategy of pricing as it was to expected the demand for the product to be elastic, therefore, lowering the price assured China Glaze of an increase in revenue. The company also applied this strategy to command economies of scale (Entrepreneur Staff). China Glaze produces other goods that are complementary to the spray-on polish such as gel, stick on nails, nail art, and nail polish removers and thus drawing consumers to the spray-on product could enable the company to make profits on the sale of the others.
To implement its pricing successfully in the marketplace, China Glade decided to use price bundling. The company gave an offer such that when an individual buys two spray-on nail polish cans, the customer gets a clear topcoat finish for free. The enticing price structure aimed to capitalize on the sales and to create awareness of the product.
The fundamental rule of pricing is to ensure that the cost of the product covers all the manufacturing expense and the profits (Blackman). Before deciding on the price for the spray-on nail polish, China Glaze considered the cost of manufacturing the product. The cost of manufacture included the equipment, the inventories, financial losses, human resource, and utilities. The company established its price using Cost-plus pricing method. During the product pricing, the company considered overhead expenses such as the fixed and variable expenses. The fixed costs are expenditures that are mandatory every month or yearly. The company had to factor in salaries and allowances, liabilities, insurance costs and utilities. On the variable expenses, the organization discussed the marketing efforts, variation in the prices of services and supplies (Entrepreneur Staff).The company also considered the cost of sales which was used to calculate the gross profit margin. The margins are an essential indicator for estimating the business profitability. Another consideration made was the value of the determining margin. The margin implies the difference between the cumulative sales and the cost of the sales (Entrepreneur Staff).
How Competitive Pricing influenced the product
The competitive prices in the market impacted the company’s product pricing. It affected the organization such that it had to adjust the value of the spray-on polish based on their competitors’ prices and not on the manufacturing cost and the profit goals. The company decided to gain an advantage over its competitors by developing a proper corporate image, branding and stressing the high quality of products. The competitive prices are a challenge to a product as they determine a product success and failure. The company also decided to launch a product that is competitive and falls under the low cross elasticity category, therefore, the demand for the product would rise gradually. The company also decided to establish a target market. Consequently, it had to figure out which income bracket the product targets, and determine whether they should produce standard, medium or the premium version. At last, the company decided to settle on a premium pricing strategy over its competitors such that the value was higher than the competitors however with some additional benefits such as getting a discount on the clear top coat finishes for the nail polish.
Recommendations on Improvement on the Product Pricing Employed
China Glade used the penetration pricing strategy such that it set the prices low to gain from the economies of scale and also to attract the consumers to the organization’s other products. However, I would recommend that the company to employ the premium pricing strategy as ranking has the company as one of the top nail polish manufacturers’ worldwide. Consequently, it has the advantage of customer loyalty from its previous products. Also targeting the high-income earners would give them a lead as the company would not have to worry about the shifts in the value of the product would not affect the sales.
I would also recommend competitive pricing instead of the cost-plus pricing. Often it is difficult to differentiate between nail polishes. I would first determine the market leader, find out the prices they are offering then figure out the China Glazes’ maximum cost and decide based on the comparison. I would then set a higher rate than the market leader and also provide exceptional customer service, excellent packaging, and top quality products that appeal to the customers. I would recommend the company even to consider demand price in decision making. The optimum combination of the volumes sold and the profit determines the demand pricing (Entrepreneur Staff). For instance, a wholesale customer more often purchases the products at a lower price compared to the retail customer. It is therefore vital to consider demand pricing together with the cost-plus pricing and come up with a hybrid that combines some factors of each of the three pricing approaches.
The product launch will be successful as the company targets to benefit from the economies of scale and therefore will get high revenues fast. Also, the company has an advantage as it has experience working in the cosmetics industry. Consequently, it has retainer consumers who are loyal, and its only challenge is to expand its customer base. Also, the launch will succeed as a result of the price bundling marketing strategy. Price bundling approach appeals to the psychology of customers as they usually believe that they are getting more for the value of their money
Blackman, Andrew. 7 Top Pricing Structures to Help Boost Your Profit. 1 December 2016. 28 November 2017. .
Entrepreneur Staff. Pricing a Product. n.d. 28 November 2017. .
McCormick, Moira. How to Price a Product in a Competitive Market. 13 October 2016. 28 November 2017. .
Nails Magazine. China Glaze. n.d. 28 November 2017. .
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