How and Why Marketing Creates Value in a Chinese Company with a Focus on Low Price Versus Differentiation
How and why marketing creates value in a Chinese company with a focus on low price versus differentiation
Since the three decades of reform and opening-up, China’s economy has taken place dramatically. The economic climate of China has transformed from planning economy to market economy, which means prices of goods and services are determined in a free price system and ways of marketing can be more diversified. China is a huge and potential market that attracts many dealers to come in great numbers. Therefore, the implementation of marketing strategy to create value is crucial to all traders. The usual marketing mode that Chinese companies adopt is low price strategy which creates much value for them. But with the fierceness of competition among business, more and more companies take differentiated marketing into consideration. Now let’s talk about the impact of the two marketing modes on Chinese companies.
To compete with rivals and gain more market share, offering a lower price is an effective marketing mode. The hope is that at the lower price customers will be drawn to the product resulting in a high amount of sales and a greater market share. However, low price doesn’t mean price is lower than cost. The rational premise of low price is the sustainable cut of cost, which depends on manufacture technology progress and management innovation. The result of cutting cost is economies of scale, which means the long-run average cost of production falls. As a firm becomes larger, its cost per unit of output is lower compared to a smaller rival. Then the smaller firms have to leave the industry. Thus, the winner can arise over time and remain dominant in an industry and even create value. Besides, companies need to make a survey and classify the market before pricing. It’s necessary to make it clear that which group of consumers prefer low price. It’s key to clearly know the consumers’ psychology. Why such marketing can create value? Due to the features of the industry itself, usually, the retail industry, tourism industry, and civil aviation industry prefer low price strategy. As the variety of the goods and services is wide, consumers have more choices in purchasing and are prone to be sensitive to price, which can be defined as price sensitivity or price elasticity of demand. Among homogenous good which are widely available, consumers will choose low price goods or service. In the mode of “small profits but quick turnover”, the total profit increases obviously. On the basis of this phenomenon, companies adopt low price strategy to create value.
Nowadays, companies select differentiated marketing to create value as well. Differentiation is a significant way in marketing when consumers facing many homogenous goods have no idea. A differentiated marketing strategy is one where a company develops several different brands to meet the unique needs of each of the consumer segments. The