Spring Semester 2021/2022

Principles of Management-Marketing Report

Francisco Pinho de Almeida Costa Baptista – 51525

Raed Ahmad – 48110
Vicente Cordeiro Carvalheiro Lopes – 51673
Zygimantas Tubis - 47344
A) Pricing

a)

A pricing policy refers to how the company sets the prices of its products and services based
on costs, value, demand and competition. Our company, GBSO, is involved mainly in
distribution of non-food consumption goods, more specifically hygiene and bathroom
products in the Portuguese markets. Alongside this they also offer complementary services in
consulting and marketing.

To understand their pricing policies, it is important to understand how the supply chain works
in this industry. The final consumer price of each product which they distribute is set by the
retail chains which sell them to public, so, having this final price in mind, the several costs
are then removed, for example, taxes, marketing costs, the retailers margin, GBSO’s margin
as the distributor, until eventually a final price is reached. That is the price at which GBSO
buys the product from the producer. With this in mind, the point of this process at which our
company has a chance of implementing a pricing policy is in the margins they take for
themselves. And that is exactly what they do.

Firstly, for larger retail chains, like LIDL or Pingo Doce, the emphasis is on setting as
competitive of a price possible for the final consumer, given that that is, generally, the main
decision factor for this type of buyer. After this, for smaller vending points, like smaller
supermarkets or pharmacy chains, it is possible to practice higher prices and therefore we see
an increase in margins. It is also important to note that there is an inverse relationship
between final prices and the volume of sales, so, the bigger the retailer, the smaller the
margins for each individual unit, but the larger the volume sold, and it is this relationship that
allows the manipulation of margins in an efficient way.

Since this is a very rational and efficient process with proven results and used by everyone in
the distribution industry, we don’t believe it makes sense to offer different suggestions,
because they would probably be less efficient.

b) Nonlinear pricing can be considered a case of second degree price discrimination whereby
each unit sold doesnt necessarily have the same price. Some examples of these schemes
include bundling, quantity discounts and two-part tariffs.
In our industry, we can see that it is commonplace for businesses to utilize bundling. This
refers to a producer supplying multiple goods or brands rather than supplying just one brand
of a certain category of good. Businesses in our industry normally bundle goods in terms of
their category, so, for example, hygiene goods would fall into one category. This would
include soaps, face wash, oral hygiene products, etc. Another such category would be

Another non linear pricing scheme found in our industry is quantity discounts. What this
means is that for larger quantities supplied, a lower price will be charged. An example of this
would be if Pingo Doce placed an order for say 100 units, we would charge a base price of $1
versus if they were to order 1000 units, we would charge them a price of $0.8 per unit. To
incentivise many retailers to sign contracts with distributors in the industry, many of them
offer quantity discounts like this so that signing with a respective firm becomes more
attractive for said retailers.

Lastly, we can see the presence of two part tariffs in the industry. This can be seen through
the fact that many firms charge what can be described as a retainer for their services. This
means that customers of distribution services pay a fixed cost per year to firms to secure
services for use when required. This is coupled with a per order margin that is taken by the
distributor based on factors relating to the respective order. Since there exists two costs that
are not related to each other, the lump sum and the per order cost, we can classify this as a
two part tariff

In conclusion, we see that these nonlinear pricing policies help in increasing producer surplus
which is advantageous for the firm, and even though it is probably not efficient to implement
all of them at once, it would be beneficial to analyze which of these GBSO is currently not
using and, should they implement them, would improve upon their results. Either way, they
will always be better than single price, because they can improve the producer surplus and the
whole company’s final results.

c) Market segmentation helps companies to minimize risk by figuring out which products are
the most likely to earn a share of a target market and the best ways to market and deliver
those products to the market. For our company, this market segmentation is based, on one
side of the supply chain, on the type of service provided to the producer they represent, and
on the other, on the size of the retailer buying from GBSO.

On the manufacturer's side, GBSO has a few different ranges of services provided. For
example, they can only distribute a certain product, or offer additional services of marketing
and consulting advisory, and so, the margins taken from the final price change accordingly.
This is useful to maximize producer surplus in these processes and benefit GBSO’s final
results.

On the other hand, on the retailer’s side, a similar adjustment is put in place, with higher
volume retailers being able to buy the products with GBSO taking smaller margins, but this is
compensated with the larger volumes sold. This is beneficial in the same way that it is for the
manufacturer’s side, with GBSO being able to personalize margins to tailor it as best as
possible for each buyer.

With these practices in place, GBSO is able to discriminate between both their clients and
their consumers in order to maximize efficiency in each transaction and each deal they agree.

d) A suggestion from our team would be offering discounts for long term contracts in that

if a client signs a multi-year contract, we can charge lower margins. For example, when
signing deals with a company if it is only a one-year contract, it is standard for us to charge a
margin of 30%. If the same client, however, was to sign a three-year contract, or a four-year
contract we could simply decrease our margin to let’s say 25% or 20%. Since we have
received a long-term commitment from them it will then ensure longevity for us. What this
means is that we can be sure that in the future these clients continue to do business with us
and due to this, we will in the long run make more profits from this one client than we would
have if they only signed a one-year contract. Another aspect of this is that it is very lucrative
to clients seeing as they will be attracted by this lower rate we are offering over the course of
the contract. Therefore, it may entice clients to switch from their current situation to use
GBSO as a distributor. This would thereby expand our client base and improve our
performance through expansion of our client base

e) We consider our firm's main service as the distribution and wholesaling of various
products and therefore we can conclude a compliment service of our firm is its consulting
department and all other related human resources. This service is already quite developed and
is one of the main selling points of our firm. We can even go as far to say that it is one of the
unique selling points of our business, seeing as most firms in the wholesaling and distribution
industry do not offer this kind of service. GBSO currently offers this as a separate service, in
that it is not bundled with its main distribution business. Given that this is already developed,
and we are already gaining advantages from it, there isn’t really a need for us to develop any
other compliments. One thing we could explore is bundling this with the service of
distribution and offer both together. This bundle will allow us to stimulate demand because it
will be offered at a relative discount as compared with both services separately. This in turn
will lead to a rise in revenues although we will have to compromise on profit margins
however, it could lead to an increase in customer base and volume of our business which
would to some extent nullify this compromise we have made on our margins.

B) Promotion and Advertising

a) From the wide range of hygiene and cosmetic products that GBSO markets, we chose to
focus on the advertising of the Pure Rosehip Vegetable Oil. By advertising this product,
GBSO seeks to make it known to more people, in order to increase sales. This product has
great regeneration power for skin blemishes, stretch marks and wrinkles, it is also an
excellent moisturizer for hands, elbows, knees and heels, making it mainly indicated for
women. To advertise this product, GBSO made use of the social media “Instagram”. Images
and short informative texts were used, from what we can say that the main objective of the
company wasn’t to persuade; customers will end up buying the products for its quality and
properties. The company chose to enter social media, as a way of creating proximity between
them and customers and also because it allows greater flexibility in the product catalog and
its constant change. GBSO also communicates its products through brand events, public
relations and institutional social networks.

b) To compare our company to the industry standard in what comes to advertising, we based
ourselves on three relevant companies: Filorga Portugal, LR Health & beauty Systems
Portugal, Colgate-Palmolive. We cannot say that there is a standard in the industry in which
we work, because there is a great diversity of types and sizes of companies, there are also
thousands of brands, each with an identity and marketing strategies. Despite this, these three
companies also rely mainly on social media to promote their products and reach out to
costumers. Thus, in this sense, GBSO is aligned with other companies in the same sector.
To evaluate the company results and compare it to the industry average, the ratio that would
best serve our needs is the ROAS (return on ad spend), it is the is the quotient between
revenue attributable to ads and the cost of ads. It happens that we have missing data to
calculate it.

C) Place

a) For GBSO, given that it stands in the middle of the supply chain it is very important to
understand clearly who their clients, as well as their buys, are.

Given that GBSO works as a distributor of hygiene products, their clients and the producers
or manufacturers of these types of products who are looking into expanding in the Portuguese
markets. As of now, for GBSO in particular, they are mostly companies from the French
markets. Their buyers are the final vendors of the products, like retail chains or pharmacies.

In this current value chain approach, the value is in the fact that GBSO doesn’t need to have
the knowledge and the processes in place to actually develop the products they sell, and
instead can focus just on choosing which companies to represent based on their qualities and
strengths. However, the fact that they don't manufacture the products is a double edged
sword, given that sometimes suppliers can be unreliable and GBSO would lower their costs
by simply having their line of production.

For this industry and firm, given that they are already an established company in this space,
with acquired knowledge and human resources with a lot of experience, it is expected that an
expansion vertically in the value chain would be beneficial, because it would eliminate the
troublesome factor mentioned earlier. However it is important to note that in this analysis, we
believe that, to maximize efficiency in the use of the company’s resources, both human and
production factors, the best combination would be to maintain the distribution aspect working
alongside the creation of their own line of production.