This week we had rigorous discussion about pricing strategies. We learned about the pricing line, which was well illustrated by Sir Mannan. Now after studying this chapter I came up with a dilemma regarding "pricing", taking into consideration the economy situation.
Case
If I say I have made an innovative product, it's totally a new product concept, and I want to price it. The economy is in downturn (recession). How should I price the product? Ofcourse, the price would be above the cost line. Normally, the companies set economy-inspired prices. But is this a sound strategy? Do customers always want cheapest prices?
Can lower price actually hurt rather than helping? Will it generate long-term negative perception about the product? (Example: Imagine Mercedez Does that)
(Note: This case has been totally developed by me and I want an “awesome” discussion regarding this topic)
Friday, January 16, 2009
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14 comments:
In my view point you will price it in a regular fashion not considering the economic downturn. Reason is if you look the fact will appear that this economic crisis is basically affecting the middle & lower classes. The upper class globally is not very much bothered about it (keeping aside that all analysist we see on TV belong to that class). As your product is going to be an innovation & you quoted Mercedes here which targets the upper class, if they like your product they are going to buy it anyways.
I gave the example of mercedez just to make it understand, take it as a product marketed to middle and lower class!. Then think, we still have middle class people who buy high priced products, just like it support's the image. Now how should i price these type of products..
Osama you are thinking inside the box!!!! i think that even in recession the price would be above the value and at or a little lower than the percieved value because we have introduced an innovative product and in the case of mercedez the people buying it would be of the upper class. so the recession wont effect them to a greater extend because they have a large amount of savings or perhaps they have several oppertunities awaiting in the boom period. and even pricing the product at or below the cost would harm the image and the perception of the customers that "Mercedez has become a cheaper product" so this wont attract the attention of the elite class who is the targeted segment.
I think sohaib i have questions from you not that im thinking inside the box. Pricing is not just as simple you are taking sohaib :D
where did i say that i am taking easy. so think before you write..
If your target market is middle class & lower class I would suggest that you don't introduce a product during the period of downturn.
Secondly if we look at the ipod. People belonging to every class like it.However, its price is the same for everyone. The upper class can afford it quite easily & people from the middle class put together their saving to get one.
So to some extent it depends on your product if it can survive introduction during recession.
Quite an interesting discussion going on.......!
To some extent, I'll agree with Sohaib and Fatima. Yes, this is a known fact that the Golden time to sell a product is during an economic boom period. But if an economy suffers recession....that doesnt necesserily mean that innovative or high priced products stop being manufactured simply because they wont get sold. U price a product high in a recessionary period and still people'll buy it if its worth it.
Over here we're not only talking about price....millions of other factors come in e.g, if u advertise ur innovative product in the right way....then people even from the middle or lower class would come running after it. As Fatima rightly said "they'll put together their savings and buy one"
I've seen people, who live in ramshackled two room apartments on rent, carrying the latest ipods and blackberries. WHY??? Simply because its their priority. They cant compromise on these things. And u know what Osama... the shrewd people manufacturing such products are aware of their customer's weaknesses.
I agree that pricing is by far the most complicated aspect of a product. It takes a clever mind, a sharp observation and a lot of farsightedness to set the proper price. Economic boom is the ideal time....but still businessmen out there know that an economy cannot always experience a boom so they take pre-emtive measures and price their products in a way that minimizes the harmful effects of cost push inflation and ensures maximum profits for them.
Another way can be that during such a period you go for market skimming rather than penetration.
I think economy-inspired prices are not such a sound strategy. You don't have to necessarily price the product at a low price during recession to sell it as many consumers use price to judge quality. Cheap prices don't always motivate or inspire customers to buy the product. Consumers usually perceive higher priced products as having higher quality. So irrespective of the recession they will buy it. You can skim the market and use psychology of prices and not simply the economics.
I’m of the opinion that lower price in the long-term can create negative perception as consumers might believe that the quality has been lowered or that the company or product will be out of market soon and may not supply future parts.
I am loving the discussion going on here and I respect everyone's opinion here but I want anwers on "why did you choose to price at that level?" not merely what it should be. Please help me getting answers on "whys".
Pricing for an innovative product, I think, Usama should be kept high at the introductory stage.Because as many others have suggested demand for a product does not just depend on price. Percieved value comes in and above all u are making sth nobody else has.
And once the product has been launched at a high initial price then the price sensitivity can later on explain that which strategy would give the max profits. Here onwards a company has always got the choice to revert back to lower prices if demand is low. But really it would be ironic to keep selling a new product at a low price without even trying to sell it at the same demand level at a higher price.
The problem is that pricing of products is a vast topic..!
There are millions of different product categories....even under the banner of innovative products.
To answer your WHYs more comprehensively....you pick some real life world innovative products Osama.
Then we'll discuss their respective pricing strategies as well as the reasons for those price levels.
Whenever u'r generally discussing a topic....it gets a bit confusing. So it wld be better if we discuss along with examples.
It can be discussed generally, Here is why:-
Consumers give you their hard-earned money in return for something that meets or exceeds their perceived value. It doesn't matter if they're buying a hot dog, ipod, or staying at a five-star hotel; consumers want to see value and quality in return for their money.
And studies have shown that in many cases, the more people pay, the more value they ascribe to their purchase. Money plays a funny role in the purchase process: it anchors perceived value. If you discount prices during adverse times, consumers may begin to question the original value.
you have to price the product according to the consumer perceived value which might mean intial loss for future control of market.if the product u r going to introduce is luxury item them you have to consider economic factor.
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