Q.
(a) Elaborate the new product pricing strategies during the introductory stage. (15 marks)
(b) Elaborate two (2) product mix pricing situations when the product is part of a product mix. (10 marks)
(25 marks, 2016 Q5)
A.
(a) Pricing strategy for new product launch
Pricing is one of the marketing mix, and plays an enormous role in the successful introduction of a new product into its market place.
There are many types of pricing strategies for various purposes. Below are 6 common pricing strategies.
- Premium Pricing
- Market penetration
- Economy or Low pricing
- Price skimming
- Psychology pricing
- Bundle pricing
For new product, there are generally 3 major pricing strategies for product launch, the premium price strategy, penetration strategy and the low/economy price strategy.
There are various factors which would determine the pricing strategy deployed for product launch. Some are listed below.
1. Competition
2. Barrier to entry
3. Product features
A highly competitive market place, for example the FMCG market - Fast Moving Consumer Goods, pricing strategy would usually employ the low price entry strategy. For example sampling strategy with price offer of buy 2 get 1 free. This is low/economy pricing strategy.
However, if on the other hand, it is premium market segment of luxury goods, the product launch strategy would likely be premium price strategy. This is selling new product at higher price than the market leader. Its objective is to establish product differentiation and segmenting the market place for this new brand. In this way, a new segment of users will emerge as user of the new premium product.
In between, there can be strategy like introductory price with bundle or sampling for new product. The market has to try out the new product so giving free sample is also another way to reduce price. This is part of the pricing strategy too.
When there is high barrier to entry, for example monopoly of another player, for example Astro in the Subscription PayTV market, market new entrance like HyppTV, would match the price with the pricing of market leader Astro as they are after the same segment of the market. This is a penetration pricing strategy.
Feature differentiation also determines the pricing strategy of a new product. A new product with higher value (or perceived value) to its rival would likely price at higher level to the competitor as to highlight its added value. This is psychological pricing strategy. Example of this type of market is fashion apparel market. One brand of fashion is featured as psychological superior in its class, for indeed the same material, manufactured in the same factory.
However, some of these feature differentiations can be significant. For example, a medicine which works the same but fewer tablets to swallow a day would sell at higher price. This is a technical advantage and thus the company can deploy price skimming strategy. This way, the advantage of few tablets or few times to swallow tablets would be featured as an advantage, thus higher launch price. However, as newer products with same features (fewer tablets, fewer time to swallow) emerge later on, the pricing can come down to defend the market share.
Ref:
http://quickbooks.intuit.com/r/pricing-strategy/6-different-pricing-strategies-which-is-right-for-your-business/
Own account.
b) 2 product mix pricing where product is part of the product mix
This is like product feature (one or more products) interplay with pricing to determine the market price.
