Skimming Strategy and Pricing Method - Essay Example

Task: Pricing I should adopt skimming strategy so that the price set at last becomes acceptable and beneficial on a two way dimension. The advantages and disadvantages that come along with price setting methods must be put into consideration. The choice of a pricing method to be adopted largely depends on the nature of the product and the targeted market structure and composition. The available methods include the cost based method which involves the price determination based on the cost of production. In this method, the values of all the inputs applied when developing the product are summed. The other method is the value based method. This focuses on the values of the product. In this method, the value of the product is the extent of the customer's satisfaction and, therefore, forms the criteria for price setting (Smith 145). Value based method would be appropriate for this case since there is no competition in the market. Mark-up approach and the fixed percentage approach would also do for this same reason that there is no competition in the market. Therefore, balancing out on the application of these methods in price setting would be appropriate. Competition based method would not be relevant in this case since there is no competition in the market. Price skimming strategy will fall as one of my consideration. This is mainly because the product is new and does not have a replica of it in the market. For this reason, the market prices must be higher than what other existing products cost (Smith 289). The new product is of a higher quality with higher demand due to the additional features; this justifies the reason for giving it a higher price. On the other hand, I must consider how the consumers perceive higher prices and what their take on increased prices could be. The bottom line in this consideration is that high prices can be set initially and well accepted, while it may not be easy to hike prices at a later date. Beginning the sales of a new product at a high price is more advantageous. The quality of the product in this case being high would justify the high prices. The new machine is one of its own; hence, the competitors are kept away already for setting new competition on the product. In this case, I would not apply the market penetration pricing since there is no competition. The fact that this product is unique makes it more appropriate for me to set higher market prices since building demand quickly will not be affected because it is not produced by any other competitor. It would also be necessary for me to choose tactics that would go well with both the company and the customers. As such, quantity discount would deem necessary for a higher rate of stock flow to be realized. The timing of such high quantity purchases must be put into consideration before I offer such discounts. Having the mind of the customer at the point of price setting would become necessary for me. This will be in terms of how the customers perceive the product and the feeling they may develop over the new products and the set prices (Smith 68). This psychological aspect in price setting may help in developing a notion of how the customers would react to certain prices. Internal and external reference prices would apply in this case. Odd prices will be considered as the customers would most likely perceive the prices to be low. The number 9 at the end is the trick to be applied in this case when pricing. Zone pricing would apply considering the cost of shipping. The product would cost much more for consumers who are located far away from the manufacturing zone. Bundled purchases would be given a discount on purchases. For those who buy the washing machine and other products within the company get a discount. These are aimed at ensuring a high number of purchases of the company products with the help of having the new product in the market. Long-term and short-term pricing tactics would contrast in this case. The short-term strategies would be mostly responsive to the prevailing conditions while the long term strategies would look into maintaining the sales of the product. For this reason, certain price reductions will apply, as appropriate, depending on the number of machines bought and for the first time service of the machine. In case the machine does not function well, the consumer is free to return it and to be reimbursed up to 90 percent of the buying price. Leasing could also apply for customers to be able to use the machine and pay for a given duration (Smith 47). In the same context, I would apply the pricing tactics as meant for business to business. These would include discounts and allowances. Uniform delivery comes along with the case of zone pricing. Customer satisfaction would be the first consideration so as to maximize sales. It is a fact that the manner in which the company relates to the customers will dictate the extent and length of sales. In price setting, legal issues must be put into consideration. This is because the company may get into trouble by violating any of the governmental procedures concerning price setting. The most common pricing issue is the provision of false price information during advertisements. The change of prices to different customers may be considered illegal. Prices must be relatively the same for all customers who want to buy the newly invented machine, unless the customer is qualified to enjoy the discounts. Harming the consumer through pricing is under check, courtesy of the authorities. The government takes exceptional care of customers by regulating the prices. There are practices that are controlled through the governmental regulations (Smith 122), among which are the deceptive reference prices. The other regulation is about lowering the prices below the cost as well as the bait and switch. Predatory pricing will not, however, apply for my price setting since there are no competitors in the market. From the above analysis, my pricing plan will take care of customers and maximizing sales. The pricing of the machinery will ensure that the company takes advantage of the market that it dominates. All customers should derive full satisfaction to enhance the realization of the difference of the machine with the common ones. Following these strategies, I believe that the correct price would be set for the machine that satisfies both the company and the customers. The fact that the machine is new and faces no competition in the market will be an advantage to achieving fair price setting. Works Cited Smith, Tim. Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures. Stamford: Cengage learning, 2011. Print. Read More