Product and Pricing Strategy - Customized Cell Phones - Case Study Example

Topic: Product and Pricing Strategy - Customized Cell Phones JF’s Electronics has analyzed the foreign market for inaugurating its new product – thecustomized cell phone – in Philippines, as per its marketing plan. Now is the time to decide the product and pricing strategy of introducing customized cell phones. Pricing strategies play a significant role in marketing efforts, and differences in pricing strategies are bound to happen as operators have to fight a more complex pricing with more varied pricing plans and greater subtlety of pricing options and use of techniques because of operating in a “smart industry” (Pricing Strategies, 2006). JF’s Electronics can employ versioning tactic for various components of the product strategy – its features, attributes, service, and service features. Using the A La Carte tactic for JF’s Electronics product – customized cell phone – customers can be offered a number of add-on software capabilities in their cell phones, choice is theirs’. It could be an ideal pricing strategy, most probably fit only for customized cell phones (Pricing for Profit, 2010). Another versioning tactic is offering as much as customers desire like in an airlines company, they offer a range of classes like business, economy etc. For a customized cell phone company, it holds true as customizing is selecting as much as you want from a range of software features and capabilities. Higher pricing for in-demand features and less for ordinary capabilities! Sometimes low pricing tactic can also be used to attract customers. Again it depends on whether the company is interested in volume sales or more profits. In the matter of JF’s Electronics, the ideal approach should be not earning huge profits but stabilizing the market with volume sales by offering discounts so that market for its customized cell phones expands fast in a foreign country (Pricing for Profit, 2010). Another crucial component of a product is the capability of changing the product’s attributes to create appeal and demand of the product by new customers. The good thing about JF’s Electronics’ customized cell phones is that their attributes can help in attracting new customers. Customers can choose from a range of mobile phone’s hardware and software features and capabilities as per their needs and likings. Thus, as many features can be added or subtracted according to customer preferences (Pricing for Profit, 2010). Another component of product strategy is its service and service features. Servicing and repairing of cell phones is a promotional feature. Customers want quick service, as cell phones are very important part of a person’s mobile accessories. Customer base can be strengthened and enlarged by providing on the spot service and repairing, if possible. Any unnecessary delay in after-sale service can dampen the image and brand value of JF’s Electronics. The ideal strategy should be satisfying the customers through pre-sale and post-sale services no matter if you charge high price. Your products will become branded and well positioned in the market on the good add-on value that you provide through servicing (Pricing for Profit, 2010). The above mentioned components of product marketing strategy will add value to the marketing effort. All new products don’t possess the features like adjusting the product attributes through La Carte, offering them the choice of customizing, and providing efficient after-sale services. JF’s Electronics is capable of catering to the needs of all age-group customers. The crucial feature of the new product is its customization, which has the revolutionizing capability of attracting customer base, particularly the target market with the supportive pre-sale and after-sale services, making the marketing efforts effective (Pricing for Profit, 2010). Pricing strategies for new products Pricing strategies for a new product depend on the company’s goal; it has to choose between profit and market share. JF’s Electronics, as stated above should opt for maxim market share at the initial state. In other words, it needs to select either skimming or penetration as its marketing strategy. Before discussing what pricing strategy will suit JF’s Electronics, it is relevant to discuss the attributes of both skimming and penetration (Pricing Strategy, 2010). Skimming Skimming happens when companies fix a price above the market to come in the knowledge and attract, in other words, ‘skim’ the high affordability customers called – the ‘cream’. It is a strategy that captures the attention of high income group customers; these customers sit on the top of the demand curve. They need not bargain and negotiate the high price. Skimming strategy can be employed in case the product is distinct and has comparatively inelastic demand. As the customers’ affording capacity is high enough not to give consideration to its high price and manage a quantum sale at reasonably high prices. Skimming is more suitable when the company cannot benefit from the economy of scales as introduction of a new production in a short period and the economy of scales takes time to materialize. Therefore, a company cannot avail the benefits of volume sales, or the other reasons could be lack of capital and other resources, needed for wholesome production (Pricing Strategy, 2010). Penetration This pricing strategy is just the reverse of skimming. A company sets a low price with the sole purpose of getting maximum exposure and space to its new product in the given market demand for that product. It can happen when the demand for a given product is elastic and the low price will lure the customers in great number to purchase it, resulting in increased revenue to the company. Other reason of using penetration pricing strategy is the possibility of economies of scale. The reason of using this strategy could be the fear of competitors and a company wants to go ahead with its first mover entry. Penetration can also be employed when the company is offering complimentary products, which can increase its margin of profits (Pricing Strategy, 2010). Technologically advanced products like the Apple iPhone required skimming strategy because of being the latest and the costliest, making it out of the common man’s affording capacity. On the other hand, penetration tactic is used by companies entering the generic market where competition is high; economies of scale are possible, for example, Sony with the PS3. Sony captured the market volume with PS3 by setting very low prices. It decreased the demand of competitors’ consoles but Sony got another advantage from the penetration pricing by getting a ready market for selling games and developing support for its Blu-Ray DVD format (Pricing Strategy, 2010). JF’s Electronics needs to consider the market trends before opting for a pricing strategy as customized cell phone by the very nature of the product is superior and advanced electronics product. Only aristocratic and high-income group of professional men and women can have preference for a customized cell phone. It seems that skimming could be a better tactic but JF’s Electronics is introducing its new product in a foreign market – Philippines. It is more important to capture the maximum market share first and then introduce differentiation tactic by offering unique software features to the interest of the elite community in stead of directly applying skimming as pricing strategy (Pricing Strategy, 2010). In differential pricing, the same product is sold on different prices to different customers. Our pricing strategy should be in conformity to the product type, which is an electronics gadget to be presented by customizing it – the cell phone – to be tried and tested in a foreign market first. Characteristics like age and gender can be used as a differential pricing tactic, which can be applied in the sale of customized cell phones. Customers of all age groups and gender don’t need a customized phone. Mostly, high-profile people earning in high brackets would like to purchase a customized cell phone whatever price we may demand. Price of a customized phone is never an issue with them. But then, at the same time we cannot depend on this differential tactic in a major way as we are entering a foreign market, the environment of that country’s social structure and income level could be criteria for the people – the Filipinos. Young generation between the age-group of 30 to 40 may pay more for a customized phone as they are fully acknowledged with the advanced features of a cell phone and may have certain preferences which are not available in popular brands (Pricing for Profit, 2010). Mixed bundling -- selling a product to an individual at high price and selling it at low price in discounted bundles -- can be applied to a limited extent as a pricing tactic to customers if such a demand of customized cell phones is made. JF’s Electronics can use the negotiation tactic in differential pricing, as the cell phones are customized by the company; it’s not a product of any popular brand, which needs to charge the same price because of maintaining the standard. Negotiation tactic is more relevant in selling customized phones as pricing will be determined on the variable features that the customer wants in a customized phone. It depends on the number of software features a customer desires to be in a cell phone. As the market for customized cell phone is not competitive yet, there is good scope of charging different and high prices for some extra and unique features in a cell phone. Being a new product in a foreign country, there needs not be any ethical issues relating to pricing tactics. References: Pricing for Profit. (2010). Retrieved March 3, 2010, from http://www.pricingforprofit.com/pricing-explained/price-discrimination.php Pricing Strategy (2006.) Dockstoc. Retrieved March 3, 2010, from http://www.docstoc.com/docs/16661617/Pricing-Strategy Pricing Strategy (2010). MBA Help. Retrieved March 3, 2010, from http://www.ukessays.com/mba/marketing/pricing-strategy.php Read More