Tishk International University

Entering a new product into the market

Presented to the Faculty of Management and Economics

Department of Business and Marketing

January 8, 2020
 Strategies of Entering a New Product into a Market

The steps before launching a new product into the market, put in simple terms are:
design, produce, prototype, get feedback, redesign and sell. The production process is actually
much more complicated than this, and sometimes can be very time and money consuming.
Presumably, the product is ready to be sold, it needs a price tag. There many methods to price on
a product.

One of those many methods is price creaming also known as price skimming, like in the
case of Apple Company when they reduce a new product. Price is creaming is when the product
is put out there with a very high starting price in the beginning of the launch, and then reducing
the price little by little as time goes by. It is almost like creaming the top of boiling milk. This
method has proven to be effective primarily with smart phones. Another pricing method is
penetration pricing, which is almost contradictory of price skimming, in which the product or
service is launched with a low price initially to quickly gain market share. This method may in
some cases backfire, because some customers might be lost after the price is increased.
Sometimes, when competitors’ prices might be too low and it would mean selling less than their
prices, and it could mean that the product is being sold at a loss.

There is also the economy pricing method, mostly used by firms with large volume of
sales and low overhead and marketing costs like Carrefour super market. With economic pricing
method, little markup profit is added and thus the only way to make real money is through large
number of sales. Additionally, there is also premium pricing method, where the products are sold
at a higher price because in theory, there are no competitors with the quality as good as the
firms’ or is basically a famous brand. Mostly the famous brands or those who have really unique
and one of a kind products actually have sales. This pricing method is used mostly in the niche
market.

There are also geographical and psychological pricing methods. From the name,
geographical pricing, typically affiliated with international and multinational companies, is to
have different prices for the same product in different places. The prices vary based on the cost
of selling this product overseas. Of course the product will be cheaper in a country with less
taxes, tariffs, rent and administrative costs. And psychological pricing is when companies use
prices such as $9.99 instead of $10. It does not actually sound smart yet it is very effective.
Amazon have used this method in a more creative way, on some of their products, instead
writing $15 plus $5 shipping, they write the cost as $20 and free shipping.

Getting back to basics of accounting, most prices are cost based, or at least the cost of the
product is known. Simply, this is the cost plus markup percentage of cost, in which is referred to
as the selling price. Then the firm calculates its revenue by multiplying the selling prices by the
units sold. This method is used in the pharmacies on Erbil, they can add maximum %25 to the
cost of the item this %25 rule is being watched by the government.

Assuming the firm has agreed on the pricing strategy for the product, and then they have
to decide on where they want their product to be. Literally, as in where in the world do they want
their product to be selling, and metaphorically, in what type of market. Where the firm would
want to sell the product depends on where the firm is established in, alongside the availability of
potential customers in their local area. Even if the firm wishes to stay local and sees more
openings for the product in the local market, there still has to be a market segment chosen.

Segmentation of the market can be done by certain criteria chose from the firm, or could
be according to the four bases of consumer market segmentation: behavioral, psychographic,
demographical and geographical. It is totally up to the firm to decide how they would like to
segment. Maybe the firm wants to segment the market based on income rates, as in upper class is
the rich class and so on. As of the second and more common way of segmentation, is what is
really necessary. These four bases analyze total consumer behaviors, hence making it easier to
forecast sales, and helps with determining expectations.

Behavioral segmentation studies the buying behavior of the customers. This segment of
research helps the firm understand how the people of a certain area buy certain brands. It tries to
justify why they buy what they buy. Through this the firm can determine how the people feel
about the brand or the product. If the data from behavioral studies are sorted correctly, it will
show behavioral patterns of customers in relation with their shopping.

The second segment, psychographic segment, focuses on the personality and the lifestyle
of customers. It studies the nature of human beings. Through this segmentation it will become
clear for the people as to what kind of people is he trying to sell to. In business firms usually try
to figure the people out based on the five personality traits. The study of the personality trait
proves to be highly of use in markets with much competition present. The second thing figured
out from this segment is the lifestyle of the people will be illustrated.

The third segment, the demographic segment, is the statistics of the population.
Demography shows the details of the population and shows data based on age, gender,
education, salaries, family sizes and marriage rates and more. This is very important for the firm
to be able to determine the taste of the majority of the population as age is one of the most
important factors to affect taste. For example, with a shoe manufacturer, if the majority of the
population is young adults then the product must be on the trendy side, while if the majority is of
older age then the product must be on the comfortable side. Last but not least, the geographic
segmentation of the market. Geographic segmentation is about the location of the market. It is
concerned about the weather, natural resources, culture, and how easy it is for the customer to
reach the product or service.

After that we have the product, a market, with the price and location specified, what if
left to do is to promote the product. If the promotion is done right, then the only thing that can
cause product failure is the final product. One really important step to follow is sampling and
prototyping. For example, this was Coca Cola’s strategy before the formal release of their new
energy product. Whenever, if by chance anyone met one of their vendors in any market they
would give one can for free to people passing by, and then asked for their feedback. This was a
very important step from Coca Cola, as from the feedback they got from the people, they can
redesign.

Then we have to choose who to target, as in with regards of age, gender, income group…
etc. and based on who we choose we can determine how much to charge for instance on a pair of
shoes. In KRG, if one goes to the local Bazar, there are women’s shoes with prices in the region
of $5 to $15. On the other hand, there are also the malls that have brand shoes in the regions of
$50 and above. Depending on the quality of the shoes and the people targeted we can choose one
of those markets. People also can affect this decision as it is the people who will be our source of
income. They will be the one who will generate our revenue.
 During the market research processes, we can use random selection on passing on
questionnaires with questions such how much they are willing to pay for a product and where is
their place to shop, if it’s in the bazar they are looking for cheaper products. If it’s the mall then
we can assume that they want brands. Again, we will definitely get mixed answers, but we have
to choose a side based on the percentages, if only %5 of people buy brands, then it will not work
for small firms as cost is very important their case. Even for the brands, this market may not be
worth investing in.

Another way to penetrate the market is to make the advertisements everywhere, whether
it shall be billboards, TV advertisements, or even social media. The more the people have the
product in front of them, the more like they are to buy them. Although social media are kind of a
new method, especially in KRG, but the hotels in the region depend highly on this method to
promote. They promote their discounts, parties and so on. There are companies whose main
focus and service is social media marketing, for example Market Wings, who have packages
starting from $500 per month all the way to $2000 per month.

In KRG, whenever the target people is the youth, the first thing firms run to is social
media marketing and cinemas, because the youth of the area are more interested in these. Let’s
assume that we want to open a new restaurant, from observations one can deduct that most of the
customers at the restaurants are the younger generations and most restaurants have Shisha. So
first things first, if we want to competitive, we ought to have shisha, second we can only charge
more depending on our location, and third we have to use social media marketing. Although the
social media is not the only way, we can use the good old TV advertisements but has proven to
not be as efficient as the latter with regards to the service industry of KRG.

Another reason as to why promote before the launch of the product is to create curiosity,
whether it is a famous brand or a new one. Samsung used this with the Galaxy note 10, as it one
of the most expensive phones from the brand and let customers wondering about the quality
months before its actual release date. The movie industry uses movie trailers to cause the same
thing, which is to cause curiosity and interest in the product.

When it comes to promotion it is very important for the firm to know the effect of word
of mouth in the region. If word of mouth advertising is actually important in the region it is very
important to give the best experience in to the first customers, as word of mouth is more effective
than if we try to advertise. This is due to the fact that human beings tend to take in what a friend
tells them rather than stranger.

There are two main advertisements in business, informative and persuasive. Informative
advertisement describes what the functions of the product or service; it is about what the product
does for the customer. In the case of restaurants and service industry, only banks use informative
advertisements. In the restaurant business, promote the food and the mood, same goes to hotels.
In the service industry in general, it is important to build personal relations with the customers.
In 5 star hotels, it is important to have quality personnel working in the guest relations
department, as in, someone who will always be available for the guest whenever they need
something. In restaurant they use hosts or hostesses.

Anyways, budget allocation is also very important on determining the marketing strategy
and methods, as the strategy varies greatly with the available budget. The allocated budget is to
control the price of the product, if there is a large budget for marketing that makes for premium
pricing for the product and hence making it a luxury product. With the lower marketing budgets
as well, maybe the product doesn’t call for such high budgets as some products, for example,
over the counter medicine like paracetamol does not any advertising as it is already famous and
there are many competitors who sell it at very cheap prices. In Iraq there is SDI Company, who
sells them for 500 IQD which less than half a dollar. Also the success of a marketing strategy
depends on the efficiency of the how the budget has been spent, not how much have been spent.

It is always risky for any firm whether a brand or not, whether new to the market or not,
to introduce a new product into the market. This is why it is important to do a full research of the
market, to notice the changes in the market, in order to be able to create something that will last
against the competition. Once a product gets market share, it is crucial to keep researching the
market and to be flexible. Nokia, who used to hold the largest market share in the mobile phone
market, suffered huge bankruptcy due to the simple fact that they could not adapt to the changes
in the market. Firms have to be extra careful when it comes to the technological advancements,
as they change not by the day, they change by the hour. Tesla, who were the first to create fully
electrical autonomous cars, that can perform against some of the most iconic cars in the world
such as Lamborghinis and Ferraris, has created a place for high performance electric cars in the
market. The way I see it, other cars that produce petrol cars must try and find a way to build
similar products to that of Tesla cars as soon as possible otherwise they might end up like Nokia.

To sum things up, a new product is a risk, especially if it is a unique on of a kind product.
However there are many strategies that can be used to reduce the risk factor, I mean if we know
exactly where they would buy our products, then it is just easier to launch the product over there.
Not every place has the same way of buying things, some places the buying patterns depends on
the economy. Also there is the factor that only groceries and medicine are products that will
always have sales whether the economy is good or bad, but large amounts of sales are required to
get profits. Depending on the product the market has to be chosen, as in luxury products usually
have less sales but more markups from the sales of those units. Sometimes the product is just not
that good and this is why it will fail. Nonetheless, this is why it is important to get feedback in
order to be able to redesign and perhaps switch things up based on the requirements of the
people.

Basically what need to be done before entering a new product into the market, there must
be a lot of market research conducted. Depending on the product, whether it is a consumer good
or service, or an industrial good or service, choose the target market. There doesn’t necessarily
need to be only one target market. After that we have the target market, it is important to put a
price that is reasonable in this market. Afterwards the firm must determine a location in which to
sell the product in. after the location, it is important to determine the best marketing strategy for
the product. It is very important to create ways to get feedback from the customers as this
information highly regarded for product redesign.
References:

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