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Shaping the Market Offering
You are an executive for a large multinational corporation and are meeting with other managers to discuss the following topic: Is the right price a fair price?
Prices are often set to satisfy demand or to reflect the premium that consumers are willing to pay for a product or service. Some critics shudder, however, at the thought of $2 bottles of water, $150 running shoes, and $500 concert tickets.
Take a position:
Prices should reflect the value that consumers are willing to pay.
Prices should primarily just reflect the cost involved in making a product or service.
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In a 1,764 word response, the solution provides detailed answers and discussion about the subject of price versus value or price versus cost.
Prices do not just reflect the cost involved in making a product or service
There are five general pricing strategies:
Product Line: Setting price steps between product line items
Optional Product: Pricing optional or accessory products
Captive Product: Pricing products that must be used with the main product
By-Product: Pricing low value by product to get rid of them
Product Bundle: Pricing bundles of products sold together
New Product Pricing
There are two new product pricing strategies:
Market-Skimming: Initially set high prices to "skim" revenue layer by layer from the market. Works when:
- Quality and image support the higher price
- Enough buyers want the product at that price
- Cost of producing a small volume cannot be high
- Competitors should not be able to enter the market easily
Market Penetration: Set a low initial price in order to penetrate the market quickly and deeply to win a large market share. Works when:
- Market is highly price sensitive
- Production and distribution costs fall as sales volume increases
- Low price must help keep out the competition
The following are price adjustments based on changing situations:
Discount & Allowance: reduced prices to reward customer responses such as paying early or promoting the product
Discriminatory: adjusting prices to allow for differences in customers, products, and locations
Psychological: adjusting prices for psychological effects. Ex: $299 vs. $300
Value: adjusting prices to offer the right combination of quality and service at a fair price
Promotional: temporarily reducing prices to increase short-run sales
Geographical: adjusting prices to account for geographic location of customer.
International: adjusting prices in international markets
An organization can adopt a number of pricing strategies. The pricing strategies are based much on what objectives the company has set itself to achieve.
Penetration pricing: Where the organization sets a low price to increase sales and market share.
Skimming pricing: The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.
Competition pricing: Setting a price in comparison with competitors.
Product Line Pricing: Pricing different products within the same product range at different price points. An example would be a video manufacturer offering different video recorders with different features at different prices. The greater the features and the benefit obtained the greater the ...
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