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Pricing
Watatreat
As marketing manager of Watatreat you are faced with two pricing problems for next year's
marketing plan. The first concerns the worrying decline in sales of the company's main
consumer product, the Clearwater. The other is the need to create a pricing policy for the
new sophisticated filtration system, the Iceberg. This is the result of 3 years' detailed
research and development, at a total cost of £0.6 million. It had been designed to service
the growing demand for a product that could remove more complex and complicated
compounds from consumer drinking water than had been previously possible.
Market trends
The Clearwater sold in a market sector dominated by five main products and six main
retail groups, though independent outlets made up around 30 per cent of total volume.
Over the last 2 years, sales revenues had declined from £837,000 to £760,000 with the
following pattern of sales over the last 24 months - year January to December - in
thousands of units: 25, 20, 25, 70, 80, 120, 180, 130, 110, 50, 15, 12; 30, 18, 47, 40, 85,
80, 120, 140, 120, 40, 20, 20.
The market sector had however grown over the last 2 years from an estimated £4.2 million
at retail to £4.56 million in the last year and the decline in sales for Clearwater was
accounted for by a substantial decline in market share. Market shares and (average
market price) for the main brands over the last 2 years were as follows: Diamond: 10
(£21), 15 (£21), Crystal: 15 (£19), 15 (£20), Silent Spring: 20 (£17), 20 (£18), Flowmaster:
20 (£16), 20 (£17.5), Clearwater: 30 (£14.5), 25 (£16). It was evident that new market
sector was starting to become established, the premium water treatment sector, occupied
by systems that were capable of removing heavy metal contamination and pesticide
residues. This was confirmed by the steady expansion of sales of West German products
such as Gruft and Krypton. At retail, the market was still small, but had grown from £0.3
million last year to £0.5 million in the current. The market remained very segmented with a
range of Japanese and American products selling in a variety of outlets. This market
sector had become characterised by the fact that it was supplied through independent
outlets that provided installation advice and support rather than the multiple channels that
had characterised the development of the standard Clearwater model.
Clearwater position
The weighted market retail average price for the Clearwater sector had increased from
15.9, two years ago, to 17.4 last year, or nearly 9.5 per cent. Allowing for inflation, the
market had not grown in the previous year, even though real increases in volume had
been seen in the last 5 years. Price inflation in the water filter market during the previous 3
years were 5, 6, and 7 per cent respectively. The underlying rate of inflation forecast for
the economy was 3.5 per cent and it was thought that disposable incomes were unlikely to
rise significantly above 5 per cent.
The weighted market price for the sophisticated product was estimated to be around £85,
though there were considerable fluctuations with prices ranging from £76 to £112. It
appeared that prices were rising at about double the rate in the standard market in which
Clearwater was established. Evidence from previous changes in the market suggested
that prices would continue to rise at this rate for the next 2 to 3 years before stabilising at
the overall inflation rate prevailing for the entire water treatment market.
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