Abstract
M.B.A.
A general increase in price elasticity on farming inputs as well as increasing pressure
on South African subsidiaries of international companies makes it important for a
well-planned pricing strategy. This is accentuated by the fact that pricing is normally
done only once a year in seed companies in South Africa, and customers are unlikely
to accept more frequent price changes. The aim of this study is to determine a suitable pricing strategy for hybrid maize seed for Monsanto in South Africa. The study has the following objectives: To determine through a literature study the factors influencing the decision to buy hybrid maize seed in South Africa. To determine the price range that producers would be willing to pay for typical hybrid maize seed products. To evaluate Mark-up Pricing, Target-Return Pricing, Perceived-Value Pricing, Value Pricing and Going-Rate Pricing and to determine the best method or combination of methods for the pricing of hybrid maize seed. To formulate a pricing strategy for hybrid maize seed for Monsanto in South Africa. Of the typical product characteristics, yield is the most important factor influencing the decision to buy a product. Products that are priced very high signal high quality to the customer. No significant price elasticity exists for low, medium or moderately
high priced products. Grain quality and growth season length characteristics are of little importance in influencing the decision to buy a specific product. Customers want to have first-hand experience of a product, before being willing to buy a substantial amount of it. They need to confirm the potential of a new breakthrough product on their own farms and conditions, before buying it. The most important source of information is own experience, which consists of some form of farmer trial, followed by large plot trials conducted by seed companies. If an independent large plot set of trials is made available, it would be preferred over the large plot trials conducted by seed companies as a source of information to farmers. For products of average quality, farmers are willing to pay between R453.13 and R565.79, with an inelastic zone between R483.33 and R525.68 per unit of seed. For products of superior quality farmers are willing to pay between R555.56 and R686.36, with an inelastic zone between R591.67 and R652.27 per unit of seed. Monsanto employees generally underestimate the price customers are willing to pay for products of average quality, but there is a danger that they could overestimate the prices
customers are willing to pay for products of superior quality. Sealed bid and negotiated pricing methods are not very suitable for pricing hybrid maize seed. Perceived-value pricing and going-rate pricing should be used for products of superior and average quality. For new breakthrough products, a market skimming approach should be followed and products should be priced very high, since an inflated price signals very high quality to customers. Monsanto needs more structured benchmarking with regards to competitor
productions costs. A structured benchmarking approach for evaluating hybrid performance, pricing and market share is also discussed.