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Microsoft Pricing Strategies and Competitive Advantage

(ORGN) **Please read the abstract below from BusinessWeek and answer the question that follows: I just need to look at different opinions to help me with my studies, your answer will not be submitted under my name
**Please read the abstract below from BusinessWeek and answer the question that follows:

Microsoft's Aggressive New Pricing Strategy
Reviewer: CharlesNewman, PhD


Microsoft's CEO Steven A. Ballmer hopes that extensive price cuts on everything from Office software to Web services will expand the companyâ??s market share. Microsoft has long enjoyed Olympian profit margins, using its monopoly power to maintain prices on its software even in tough times. But now, amid a terrible downturn and rising competition, it is shifting to a scrappier approach, cutting prices on a variety of fronts, according to the BusinessWeek article, "Microsoft's Aggressive New Pricing Strategy," (July 27, 2009).

The idea is to accept lower margins in some businesses but boost overall earnings by going after a grab-bag of growth opportunities. These range from expanding its share of big companiesâ?? software purchases to lowering the price of Office software so consumers in emerging markets pay for it rather than pirate it. While Microsoft expects most customers to pay for the program the way they always have, less powerful, ad-supported versions will be available free on the Web. All of these moves amount to a risky experiment in price elasticity.

By lowering prices, the company hopes to increase sales of existing products while making fast headway with new ones. If the company can gain enough market share to cover its massive costs in Web services and Internet search-particularly its vast data centers-every extra dollar will be pure profit.

***Write a one page paper about Microsoft pricing strategy from the point of view of Porter's Competitive Advantage framework.

Solution Preview

In COMPETITIVE ADVANTAGE, by Michael E Porter, competitive advantage is obtained either through a COST ADVANTAGE or a DIFFERENTIATION ADVANTAGE. COST ADVANTAGE is obtained by lowering the ratios between the unit-cost of production, the unit-price the market will bear, thus increasing the per unit profit margin. In other words, the lower the cost, the higher the margin, assuming that production costs remain the same. However, if a product can be significantly differentiated from other products, a higher selling price can be obtained, or customers may be willing to pay a price premium for a product that is perceived to provide more value. If a firm combines these two advantages by lowering costs via production/supply chain, efficiency, and quality improvements AND obtains a higher price through differentiation, a true or actual competitive advantage may result. Of course there are other factors involved in Porter's theory, such as resource and capability efficiencies, and the influence of technology on the overall value chain.

In the context of the BusinessWeek abstract, what is Microsoft up to with its change in pricing strategy? To ...

Solution Summary

This solution analyzes recent pricing changes by Microsoft within Michael E. Porter's theory of Competitive Advantage - cost advantage and differentiation advantage.