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Pricing Term Paper

1778 words - 8 pages

Pricing Based on Capturing Market Share:
A Look at Lowe’s and The Home Depot
Procurement 5830
Webster University, Fall 2011
By: Angela Grubbs

Introduction
The home improvement industry is highly competitive and determined primarily by price, store location, customer service, and merchandise sold. In each individual market there are many minor competitors who concentrate on providing consumers with products related to electrical projects, plumbing, building materials, flooring, and lumber. In many large cities, the home improvement market not only includes Lowe’s and The Home Depot, but other smaller businesses such as True Value Hardware and Menards. The home improvement market ...view middle of the document...

Loss-leader pricing is not designed to generate operating profits. Its purpose is either to take market share from competitors or create customers to whom you will later sell other things. Loss-leader pricing is the primary structure that Lowe’s and The Home Depot use in determining their pricing. How they go about capturing market share is the difference.
Lowe’s Market Share Strategy
Lowe ‘strategy involves retaining price leadership, increasing its profit margins and expanding in urban markets where its sales are strongest [ (Digest, 2002) ]. While the company has the guaranteed lowest price claim, its strategy has been to steer customers towards higher quality, higher value products, thereby increasing its profit margin [ (Digest, 2002) ] To capture market share in this industry, Lowe’s has paid a great deal of attention to the consumer and their decision process. Research has found that most people don’t know the difference between Lowe’s and its competitors [ (Nick Ciffone, 2010) ]. It is often the case of whichever hardware store is closer [ (Nick Ciffone, 2010) ]. Both timing and purpose for many products in home improvement stores affect sales. Some items, like lawn mowers are probably one-time purchases that might include comparison shopping and going to different stores. Other items, like hammers, may not influence a consumer to do much research. Lowe’s has focused on the part of the consumer decision making process that they feel can make the biggest impact through advertising [ (Nick Ciffone, 2010) ]. While most people currently just choose a store on factors such as distance, with the help of advertising, they can ideally build a real preference, where someone might drive the extra distance to Lowe’s if they truly feel like they have a better connection with them [ (Nick Ciffone, 2010) ].
Another touch point that Lowe’s uses to focus on market share are their target audience. Lowe’s has defined their primary target audience as “early squatters” [ (Nick Ciffone, 2010) ]. These are young, educated, and employed new homeowners. This group is between the ages of 25 and 34 and has income levels categorized as middle-to upper-middle class. According to the U. S. Census in 2008, the median income for Americans in this age group was $29,484 [ (Nick Ciffone, 2010) ]. Lowe’s chose to target this group of young adults because brand loyalty of new homeowners may not yet be established. Inexperienced, independent homeowners are highly impressionable and my become brand loyal within the first years of ownership [ (Nick Ciffone, 2010) ]. Lowe’s has named their second target audience as the “realized” [ (Nick Ciffone, 2010) ]. The realized group had dreams when coming to America and was lucky enough to live them out. This audience is Hispanic, lives in the upper middle class, and has disposable income. The Hispanics here are mostly homeowners and often have families. The median household income for the group is...

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