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pricing strategy chapter 10
pricing strategies principles of marketing quizlet
pricing strategies principles of marketing quizlet
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Recommended: pricing strategy chapter 10
The pricing strategy for a new product should be developed so that the desired impact on the market is achieved while the emergence of competition is discouraged. Two basic strategies that may be used in pricing a new product are skimming pricing and penetration pricing.
Skimming Pricing Skimming pricing is the strategy of establishing a high initial price for a product with a view to “skimming the cream off the market” at the upper end of the demand curve. It is accompanied by heavy expenditure on promotion. A skimming strategy may be recommended when the nature of demand is uncertain, when a company has expended large sums of money on research and development for a new product, when the competition is expected to develop and market a similar product in the near future, or when the product is so innovative that the market is expected to mature very slowly. Under these circumstances, a skimming strategy has several advantages. At the top of the demand curve, price elasticity is low. Besides, in the absence of any close substitute, cross-elasticity is also low. These factors, along with heavy emphasis on promotion, tend to help the product make significant inroads into the market. The high price also helps segment the market. Only nonprice-conscious customers will buy a new product during its initial stage. Later on, the mass market can be tapped by lowering the price. If there are doubts about the shape of the demand curve for a given product and the initial price is found to be too high, price may be slashed. However, it is very difficult to start low and then raise the price. Raising a low price may annoy potential customers, and anticipated drops in price may retard demand at a particular price. For a financially weak company, a skimming strategy may provide immediate relief. This model depends on selling enough units at the higher price to cover promotion and development costs. If price elasticity is higher than anticipated, a lower price will be more profitable and “relief giving.” Modern patented drugs provide a good example of skimming pricing. At the time of its introduction in 1978, Smithkline Beecham’s anti-ulcer drug, Tagamet, was priced as high as $10 per unit. By 1990, the price came down to less than $2; it was sold for about 60 cents in 1994. (Tagamet was to lose patent protection in the United States in 1995, unleashing a flood of cheaper generics onto the American market.
Pricing Strategy: We are going to take into consideration inflation, benchmarking and customer trade off. The pricing strategy for the new products/line extensions will be a penetration-pricing strategy to gain customers from other competitors and increase market share. Further, the volume discounts are going to be in the range of 25-40%. Taking into consideration Product lifecycle, those will be raised in the time where new products/line extension are launched.
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
Our strategy is to drive sales through penetration marketing, using competitive pricing. Gourmet Selects will do this by utilizing Hellmann’s brand equity and offering an all natural product, in which we will command a higher price. Our competitors in the spreads category, with the same target demographic, average a selling price of $8 for a 4-6oz jar. They are smaller niche brands that do not have the brand recognition and supply chain as Hellmann’s. We feel that we have a competitive advantage and will be able to price our products at a lower price. Based on our current manufacturing operations and variable cost, we predict that we can price Gourmet Selects for roughly $5.99 for a 9 ounce jar. This will place
As we learned from Chapter 12, price must be carefully determined and match with firm’s product, distribution, and communication strategies. (Hutt & Speh, 2012, p. 300) Therefore, there should be a strong market perspective in pricing. In order to build an effective pricing policy, marketers should focus on the value a customer places on a product or service. One of the most effective ways to do so is differentiating through value creation.
The low cost strategy differentiates from the company which have higher price of the product in the market, as the price is reduced to increase the demand of the product. The company which have higher price has a unique product for one set of customers, as they charge higher price than the rivals who has low cost strategy which leads to profitability and good market share of the product.
Penetration pricing is involved when a company is launching a product in a market where the product that is low priced while the company intends to secure market share. This scheme calls for extensive planning. For proper execution of the pricing scheme, the company or manufacture must be ready and willing to produce the specific product in large quantity. The company or manufacturer should also launch a big campaign that will mainly publicize the low prices of the new products. The business owner must take nit that the penetration price result in an expensive operation and the owner must be readily prepared for the cost. With a low consumer demand, the business might suffer from an accumulated stockpile of product without market and hence they become unwanted.
Predatory pricing is the practice of selling products or services at quite low prices, in order to drive the competition out of the market, or to hinder the entry of the potential competitors. This involves pricing a product low enough in order to dampen demand. This pricing is generally used to end competitive threats. The company lowers the price with an aim of protecting market share from moving to the hands of the competitors. At times firms may reduce prices to sell off their outdated stock or to fill gap with their new line of products. Some vendors tend to set very low prices for new products while introducing them in the market with a view to inspire customers to try them out. However, this legal and ethical pricing strategy becomes illegal when a company uses unethical price cuts in order to squash the sales of its competitors by selling the same product at a lower price. Federal laws are made to protect the competitors from
- The pricing strategy is a way to recoup initial investments, competition with other companies, and the factor that volume will bring down production costs. A company may also look at the benefits to earn profits on their goods when looking at their pricing. A good example of this is my teacher Dr. Fishbeck and his IT consulting business. He offers very low rates due to his competition having better benefits with their size and customer
The pricing strategy will start out rather high for this product upon its release in order to draw a more selective crowd such as the upper class members of the urban society. Once the product has succeeded within this market there will be a development of additional variations of the product which will allow for certain models, with less features, to be sold at a lower price point in order to attract the members of society who are less willing to pay the high asking price for the top of the line version of the
Predatory pricing “is alleged to occur when a firm sets a price for its product that is below some measure of cost and forfeits revenues in the short run to put competitors out of business” (Sheffet p.163-164). The reason firms take the short term loss is because they hope to drive out competitors and raise prices to monopolistic levels. By doing this, they covered their short term loss to make even greater profits in the long term than they would have by not using predatory tactics (Sheffert). Predatory pricing became illegal under Section 2 of the Sherman Act. It has remained one of the more difficult allegations for prosecutors to prove, due to the complexity of determining the company’s actual intent and whether or not it the strategy is competitive pricing. According to Areeda and Turner, there are three ways to determine if a firm is implementing predatory pricing. First, a price above marginal cost is presumed lawful; second, a price below marginal cost is considered unlawful, except when there is strong demand; and third, average variable cost is considered a good proxy for marginal cost. This is a reason predatory pricing is still important today. The courts must decide whether or not companies are engaging in competitive prices for the good of the consumers or are using predatory tactics for the good of their own company. The purpose of this paper is to focus on the current legislation regarding predatory pricing, determining when there is predation in an industry and the cause and effect relationship it has on an industry.
Limit Pricing strategy can be defined as a pricing strategy where the prices at which the goods are sold, will be unprofitable to other firms. It is the highest price that a firm believes it can charge without encouraging entry. For this model to hold, assumptions are put in place: firms are profit-maximising; the incumbent firm has an absolute cost advantage; there are a very large number of potential entrants; the potential entrants expect that the incumbent will maintain output constant at the pre-entry level (which, as a monopoly suggests, leaves a section of profitable demand that is not satisfied at the current price level), which is independent of the entrants’ decision. The result of this strategy is that the market becomes unprofitable for the entrant to enter, and the incumbent maintains an abnormal
Defining the product strategy and pricing are the most critical activities for every company. These activities include the creation of such a product that meets the needs and desires of specific groups of customers. In order to satisfy customers' needs, it is crucial to identify optimal combination of marketing mix elements. In succeeding that, managers have to find the answer to the questions like: What product's characteristics are relevant for the customers? Is there a need for designing variety of same products? How to differentiate a product? What price the customers are willing to pay for a given product? The answers to these questions are particularly important if we bear in mind that in today's business environment it is necessary to make it attractive to a particular target market, which means to distinguish a product or offering from the similar ones. Product differentiation is the process of distinguishing a product both from the offering of competitors and firm’s own product offering. These differences may lead to competitive advantage if customers perceive the difference and have a preference for the difference. It is therefore necessary to elicit the preferences of customers prior to product differentiation.
Rather than cutting prices to match competitors, they attach a value-added features and services to differentiate their offers and thus support their higher prices (Kotler, p.293). The value added is the difference between the price of product or service and the cost of producing it. The price is determined by what customers are willing to pay based on their perceived value. Value is added or created in different ways. The best strategy is setting our pricing strategies would be to use skim pricing. Skim pricing is setting a higher price than competitors. Consumers need to see that our product provides them with greater benefits than our competitors. Our use of natural ingredients, having lower calories, carbohydrates and sugar without compromised taste is what sets us apart but above the rest. The benefit of skim pricing is that you get to pick off the price-insensitive top-of-the-market clients. Who wouldn’t want this situation? The downside is that other competitors can move into the price gap, slightly beneath the skim level, then bump up the value they offer in order to challenge the skim price competitor. They may create greater efficiencies, which means their profit margins are the same, if not higher. The value proposition to the customer remains strong, yet they undercut the leader on price (Da Vanzo). Consumers will see the quality ingredients and great taste and agree why
Pricing is the other major factor in attracting the consumer to the business. We can have better pricing with in depth price analysis between each supplier and vendor. Finding the best price to quality ratio is necessary for receiving the highest profit return rate. We want the upper hand on our competition, and having more capital will allow us to spread the expenses to fulfill every need greatly. An article exampling the objectives of analyzing pricing with suppliers states, “The objective of analyzing prices and costs is to determine whether the price is equitable and/or competitive in that is it reasonable in terms of the market, the industry, and the end use of the goods or services purchased” (Selecting a Vendor 2011). Cheaper pricing with good quality is the edge we will have on the competition.
Price: Price must be consistent across the marketing mix and meet all requirements for your business. You need to price your product range at the correct level for the customers to be able to buy your products, and for them to gain value from your products. This could mean pricing high or low — this very much depends upon your customer