AS

SIGNME
NT
T
wink
alc
hak
radha
ri

MBA(
4THS
EM)

E
NROL
LME
NTNO.
–MS
18MS
501269

Q.Di scuss new pr

oductdevel
opmentwi
th busi
ness pr
ici
ng
funct
ionofindust
ri
alpr
oduct
?
Ans. A new pr
oducti
s a pr
oductt
hati
s new t
othe company
i
ntr oducingitev
ent houghitmayhav ebeenmadei nsamef orm by
other s.New pr oduct s ar
et hose whose degr
ee of change for
cust omer si
ssuffi
cienttorequi
rethedesi
gnorre-
desi
gnofmar ket
ing
strategies.

Productdev el
opmenti st henextsteptoproductpl
anning.Product
developmentist heprocessoffi
ndingoutt
hepossibi
l
ityofproducing
aproduct .I
tincludesthedecisi
onast owhetheri
twouldbef easi
ble
ornott oproducetheproductandwhetheri
twouldbeprofi
tabl
eornot
fortheenterpri
setodoso.

Prici
ngi sani mpor t
antpar
amet er;organizati
onsneedt otakecar eof
whi l
el aunching a new productorser vi
ce int he market.Bef ore
decidingt hepri
ceofanewpr oduct ,
iti
sessent i
alfororganizati
onst o
under st
and and al so cal
culatet otalcostsi nvolv
ed int he ent i
re
processoft heproductdev
elopmentbei tdesigni
ng, manufacturi
ngor
deliveri
ngt hesame.Noor ganizati
onwor ksforcharit
yandt hust he
pri
ceofanewpr oductorserv i
ceoughtt obedeci dedkeepingi nmi nd
al
l suchf actor
s.

10di
ff
erentpr
ici
ngst
rat
egi
esf
orI
ndust
ri
alPr
oductt
oconsi
der
.
Aswe’ vej
ustident
if
ied,pr
ojectmanagementandst
rat
egi
c,act
ionable
deci
sionsgointosetti
ngthepriceofaproduct
.Her
earetendiff
erent
pr
ici
ngst
rat
egi
est
haty
oushoul
dconsi
derasasmal
lbusi
nessowner
.

1.Pr
ici
ngf
ormar
ketpenet
rat
ion
Asasmal lbusi nessowner ,y ou’rel i
kelylooki ngf orway st oentert he
mar ketso t haty ourpr oductbecomes mor e wel l
-known.Penet ration
strat egiesai mt oat t
ractbuy ersbyof feri
ngl owerpr icesongoodsand
serv icest hancompet i
t ors.
Fori nst ance,i magi neacompet it
orsel l
sapr oductf or$100.Youdeci det o
sellt hepr oductf or$97, evenifi tmeansy ou’
regoi ngt ot akeal ossont he
sale.Penet rati
on pr icing st r
at egies dr aw at t
enti
on away f rom ot her
busi nessesandcanhel pincreasebr andawar enessandl oyal
ty,whichcan
thenl eadt ol ong- term cont racts.
Penet rati
onpr icingcanal sober iskybecausei tcanr esultinani ni
ti
alloss
ofi ncomef ort hebusi ness.Ov ert i
me,howev er,theincreasei nawar eness
candr i
vepr ofi
t sandhel psmal lbusi nessesst andoutf r
om t hecrowd.I n
thel ongr un,af t erpenet rati
ngamar ket,busi nessowner scani ncrease
pri
cest obet terref lectt hestateoft heproduct ’spositionwi thi
nthemar ket.

2.Economypr
ici
ng
Thispr ici
ng st r
ategyi sa “ no-fril
ls”appr oach thati nv olvesmi nimizing
mar keti
ngandpr oduct i
onexpensesasmuchaspossi ble.Usedbyawi de
rangeofbusi nesses, i
ncludinggener icfoodsuppl
ier sanddi scountretai
lers,
economypr i
cing aimst o att
ractt hemostpr i
ce- consci ousconsumer s.
Becauseoft hel owercostofexpenses,compani escansetal owersal es
pri
ceandst il
ltur
nasl i
ghtprofit.
While economy pr icing isi ncredibl y usef
ulforl arge compani es like
Walmar tandTar get
, t
het echniquecanbedanger ousf orsmal lbusinesses.
Becausesmal lbusinessesl ackt hesal esv ol
umeofl ar
gercompani es,they
mayf i
ndi tchallengingt ocutpr oduct i
oncosts.Addi t
ional l
y,asay oung
company ,theymaynothav eenoughbr andawar enesst of orgocust om
branding.

3.Pr
ici
ngatapr
emi
um
Wi
thpr
emi
um pr
ici
ng,busi
nessessetcost
shi
gherbecauset
heyhav
ea
unique pr oductorbr and t hatno one can compet e wi th.You shoul d
consi derusi ng t his strat
egy i fy ou hav e a consi der able compet i
tiv
e
adv ant ageandknow t haty oucanchar geahi gherpr icewi thoutbeing
under cutbyapr oductofsi mi l
arquality.
Becausecust omer sneedt oper ceiveproductsasbei ngwor t
ht hehigher
pri
cet ag,abusi nesshast owor khardt ocr eateaper cepti
onofv alue.
Alongwi t
hcr eatingahi gh-qual i
typroduct,owner sshoul densur ethatthe
product ’
s packagi ng,t he st ore’s decor,and t he mar keti
ng st r
ategy
associ atedwi ththepr oductall combinetosuppor tt hepr emi um pri
ce.
An exampl e ofpr emium pr i
cing is seen i nt he l uxury cari ndustry.
Compani esl i
keTesl acangetawaywi t
hhi gherpr icesbecauset hey’r
e
offering pr oduct s,l i
ke aut onomous car s,thatar e mor e unique than
any thingel seont hemar ket.

4.Pr
iceski
mmi
ng
Designedt ohelpbusinessesmaxi mizesalesonnewpr oduct sandser vices,
pri
ceski mmi nginvol
vesset t
ingrateshi ghdur ingthei ni
ti
alphaseofa
product.Thecompanyt henl owerspr i
cesgr aduallyascompet i
torgoods
appearont hemar ket
.Anexampl eoft hisi
sseenwi tht heintroducti
onof
newt echnology ,
li
kean8KTV, whencur rent
lyonl y4KTVsandHDTVsexi st
onthemar ket.
Oneoft hebenef i
tsofpr i
ceski mmi ngi st hatitall
owsbusi nessest o
maxi mizepr ofi
tsonearlyadopt ersbefor edroppingpricest oat t
ractmor e
pri
ce-sensitiveconsumer s.Notonl ydoespr i
ceskimmi nghel pasmal l
businessr ecoupitsdevelopmentcost s, i
tal
socr eatesani l
l
usionofqual ity
andexcl usivi
tywheny oufirstint
roducey ourproducttot hemar ketplace.

5.Psy
chol
ogi
calpr
ici
ng
Psychol
ogicalpri
cingr ef
erstotechni
quest hatmarket
ersuset oencourage
customer
st or espondbasedonemot i
onalimpulses,ratherthanlogical
ones.
Forexample,setti
ngt hepriceofawat chat$199i sproventoat t
ractmore
consumersthanset t
ingitat$200,event houghtheactualdif
fer
encehereis
quit
esmall.Oneexpl anat i
onforthistrendisthatconsumer stendt oput
moreattent
ionont hefi
rstnumberonapricet
agthanthelast
.Thegoalof
psychol
ogy prici
ng istoi ncr
ease demand by cr
eat
ing an i
l
lusi
on of
enhancedvaluefortheconsumer.

6.Bundl
epr
ici
ng
Withbundlepr i
cing,smallbusinessessellmul t
ipl
epr oduct
sf oral ower
rat
et hanconsumer swouldfaceiftheypurchasedeachi t
em indi
viduall
y.A
usefulexampleoft hi
soccursaty ourlocalfastfoodrestaur
antwher eit’
s
cheapertobuyameal thani
tistobuyeachi tem i
ndivi
duall
y.
Notonl yisbundl i
nggoodsanef f
ect
ivewayt oreduceinventory,
itcanalso
i
ncr easet hev al
ueper ceptionintheey esofy ourcustomer s.Customers
feelast hought hey’
rer eceivi
ngmor ebangf orthei
rbuck.Manysmal l
businesseschooset oimpl ementthi
sst r
ategyattheendofapr oduct’sl
if
e
cycle, especiall
yiftheproductisslowselli
ng.
Smal lbusinessowner sshoul dkeepi nmi ndthatthepr ofi
tstheyear non
thehi gher -
valueitemsmustmakeupf orthelossestheyt akeont helower-
value pr oduct .They shoul d also considerhow much t hey’
llsav ein
over headandst oragespacebypushi ngoutolderproducts.

7.Geogr
aphi
calpr
ici
ng
Ify ouexpandy ourbusi nessacr ossst ateori nternat i
onallines,you’l
lneed
toconsi dergeogr aphicalpr ici
ng.Geogr aphicalpr i
cinginv olvesset t
inga
pricepoi ntbasedont hel ocat ionwher eit
’ssol d.Fact orsfort hechangesin
pricesi ncludet hingsliket axes, tarif
fs,
shippingcost s,andlocat i
on-speci
fi
c
rent .
Anot herf actori ngeogr aphi calpr ici
ngcouldbebasi csuppl yanddemand.
Fori nstance,i magi ne y ou sel lspor ts performance cl ot hing.You may
chooset osetahi gherpr icepoi ntforwintercl othesi ny ourcol d-
cli
mate
retailstorest hany oudoi ny ourwar m-cli
mat est ores.Youknowpeopl eare
mor elikelytobuyt hecl ot hesi nt hewi nterenv ironment s,soy ouseta
higherpr icetot akeadv antageofdemand.

8.Pr
omot
ionalpr
ici
ng
Promotionalpri
cingi
nvolvesoff
eri
ngdiscountsonapar t
icul
arproduct.For
i
nstance,youcanpr ovideyourcustomerswithv oucher
sorcouponst hat
enti
tl
ethem t oacert
ainpercent
ageoffthegoodorser vi
ce.Youcouldal so
enter
tai
na“ BuyOneGetOne”campai gn,tackingonanaddi t
ionalproduct
asanadd- on.
Promoti
onalpri
cingcampai
gnscanbeshor t
-t
erm eff
ort
s.Forinstance,you
mayr un apromot i
onalpri
cing str
ategyov eran extended holiday,li
ke
Memor i
alDayWeekend.Byof f
ering these dealsasshor t
-term offers,
busi
nessownerscangeneratebuzzandexci tementaboutaproduct .
Promoti
onalpri
cingalsoi
ncenti
vizescustomer stoactnowbef or
ei t
’stoo
l
ate.Thi
spri
cingstrat
egypl
aystoaconsumer ’
sfearofmissi
ngout .

9.Val
uepr
ici
ng
Ifyounot icet hatsal esar edecl iningbecauseofext ernalfactors,youmay
wantt o consi dera v alue pr icing st r
ategy.Val ue pr i
cing occur s when
externalf actor s,likeashar pi ncr easei ncompet it
ionorar ecession,force
thesmal lbusi nesst opr ov i
dev aluet oitscustomer st omai ntainsales.
Thispr i
cingst rategywor ksbecausecust omer sf eelast hought heyar e
receiving an excel lent“ value”f ort he good orser vi
ce.The appr oach
recogni zes t hatcust omer s don’ tcar e how much a pr oductcost sa
companyt o make,so l ong as t he consumerf eelst hey ’
re getti
ng an
excellentv aluebypur chasi ngi t.
Thispr i
cingst rategycoul dcuti nt othebot tom l ine,butbusi nessesmay
fi
ndi tbenef i
cialt or ecei ve“ some”pr ofi
trathert hannopr ofi
t.Anexampl e
ofv al
uepr i
cingi sseeni nt hef ashi onindust r
y.Acompanymaypr oducea
productl i
neofhi gh- enddr essest hattheysellf or$1, 000.Theyt henmake
umbr ellast hatt heysel lfor$100.
Theumbr ell
asmaycostmor et hant hedr essest omake.Howev er,the
dressesar esetatahi gherpr icepoi ntbecausecust omer sfeelast hough
theyar er eceiv i
ngmuchbet terv aluef orthepr oduct .Woul dy oupay$1, 000
foran umbr el l
a? Pr obabl y not .Thus,ext ernalf actorsl ike customer
percept ionsf orcet hev aluepr icingst rategy.

10.Capt
ivepr
ici
ng
Ifyouhav eaproductt hatcustomerswi llcont inual
lyreneworupdat e,you’l
l
wantt oconsideracapt ivepri
cingstrategy .Aper f
ectexampl eofacapt ive
pri
cingstrat
egyi sseenwi t
hacompanyl ikeDol l
arShaveCl ub.WithDol l
ar
Shav eCl
ub,cust omer smakeaone- ti
mepur chasef orar azor.Then,every
mont h,t
heypur chasenewr azorbladest or eplacetheexistingoneont he
headoft herazor.
Becauset hecust omerpur chasedaDSCr azorhandl e,heorshehasno
choicebutt obuybl adesfrom thecompanyaswel l
.Thus,t hecompany
holdscustomer s“ capti
ve”unti
ltheydeci det obreakawayandbuyar azor
handlefrom anot hercompany .Businessescani ncreasepricessol ongas
thecostofthesecondar yproductdoesnotexceedt hecostthatcustomer s
wouldpayt oleavef oracompet it
or.