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02May

Pricing Strategy Essay

Posted by admin as Example papers

Example Essay on Pricing Strategy

In our marketing plan for SpofoKnife we would consider several pricing objectives that would be grounded on the three C’s of the pricing strategy – customer value, competitors’ prices, and our costs (Caltech).

First, we would conduct an analysis of perceived value, aimed at assessing attributes, benefits and values the customer associates with our product (Caltech). The results of the analysis would enable us to derive an idea of the extent to which our product meets customers’ needs, and set an amount they would be willing to pay for it accordingly. Our product offers value that results from the combination of several objects, such as spoon, knife, and fork, and due to the bundling of several things within one object has unique value for the customer and should be priced higher than three disparate similar objects. On the other hand, the customer may perceive more value in the product in case the purchase of a single object saves him/her a certain sum of money. Besides, the customer may see some deficiency in the convenience of use as compared with three separate things, and thus the price should reflect these limitations in some way. These are the assumptions that will have to be confirmed or refuted in the investigation.

As producers of a new product that has potential substitutes that are already on the market, we would take into consideration our competitors’ prices. It will not be a very fruitful strategy as SpofoKnife is a unique product that has no close matches in the marketplace, but we would take not of the prices of Swiss knives as well as lightweight kitchen utensils.

In consideration of our costs we could set a target return as any business strives to make a profit, not just recoup the costs. The target return means that “the vendor specifies a specific dollar amount or percentage amount that the price will be offered at in order to make a profit which has been calculated for a specific purpose” (Pricing Objectives).

Other options for pricing strategies are more market-driven, that is aimed at the objective of increasing our market share or sales volume. First, we can follow a pricing penetration strategy (BRS), setting a deliberately lowered price in order to get into the market brushing away competitors.

On the contrary, we could opt for the strategy that aims at maximizing profits, that is we could sell at “the highest price the market will bear” (Pricing Objectives) based on the confidence that our product does offer unique value and possess a significant differential advantage over the competitors.

Another strategy takes something from the two previous approaches and creates a laddered tactic that is called “skimming the cream” strategy. Under this approach we would first sell SpofoKnife at a high price, then after exhausting the possibility of sales to the customers who might be seriously interested in tourism and keen to get a new utensil that will make their trips easy and enjoyable, we would lower our price to target another tier of customers, for example, those with disposable income they are willing to spend on things that are not of primary importance to them (Pricing Objectives).

In the end we will focus on the objective that targets market penetration. This will mean that we will have to set the price that is lightly lower than that on competing products in order to persuade customers to buy our product for a trial. We believe this strategy could induce sales through the spread of word-of-mouth advertising as customers who purchased our product are likely to use it for some time, and thus may have an opportunity to share with their friends, relatives and acquaintances their experiences. Besides, SpofoKnife will make a nice gift, and the users who have enjoyed their experience in using SpofoKnife, might be willing to buy it for a present even if the price goes up a little.

Later, when we see that our product has won recognition in the market, we will raise the price so as to match our competitors’ prices, also taking into consideration that costs need to be covered and the company needs to get an adequate return for being in business.

Naturally, the initial stage may fail meet the objective of cost compensation or provision of target return, but we understand that the first stage of the product introduction will inevitably be linked to substantial expenditures with returns to be expected later.

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