Question

How does an organization like Blackberry develop new products and how do pricing strategies differ when introducing these new products? Do these strategies change as the product moves through its life cycle and what is the value of test marketing in new product development which can be easier with the use of technology that has affected the development of new products.

Answer 1

Product life cycle management, or PLM, is the process of observing a product throughout its life cycle. Track each product’s activities and successes to keep profits high and avoid steep losses.

The company first decides where it wants to position its market offering. The clearer a firm’s objective, the easier it is to set price.

Five major objectives are: Survival, maximum current profit, maximum market share, maximum market skimming and product-quality leadership.

The second step is to determine the demand:

Each price will lead to a different level of demand and have a different impact on a company’s marketing objectives. The higher the price, the lower is the demand.

Price Sensitivity:

The demand curve shows the market’s probable purchase quantity at alternative prices, summing the reactions of many individuals with different price sensitivities. The first step in estimating demand is to understand what affects price sensitivity. They are less price sensitive when – there are few or no substitutes or competitors, they do not readily notice the higher price, they are slow to change their buying habits, they think the higher prices are justified and price is only a small part of the total cost of obtaining, operating and servicing the product over its lifetime.

The third step is to estimate the costs:

Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of producing, distributing and selling the product, including a fair return for its effort and risk.

The fourth Step is to analyse the competitor’s prices, costs and offers:

Within the range of possible prices identified by market demand and company costs, the firm must take competitors’ costs, prices and possible reactions into account. If the firm’s offer contains features not offered by the nearest competitor, it should evaluate their worth to the customer and add that value to the competitor’s price.

The fifth step is to select a pricing method:

Companies select a pricing method that include one or more of the following methods:

• Mark-up pricing
• Target-return pricing
• Perceived-return pricing
• Value pricing
• EDLP
• Going-rate pricing
• Auction-type pricing