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Contrast the three general approaches to setting prices - Essay Example

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Often, this pricing decision is the most crucial one for the marketing managers. This is because at the launch of the new product, the price of the product is a tool that must be used to…
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Contrast the three general approaches to setting prices
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Download file to see previous pages The demand for the product would be lesser when the price is kept high, but the revenues could be more because of the high selling price. (Bovay, 2008)
There are many instances of new products following the market skimming strategy including Mercedes Benz, Sony High-definition television, Nokia N series cell phones and so on. All these products have one thing in common: they are all high quality products. Setting a high price for a new product could be disastrous for products that do not offer premium quality. As price gives a perception of quality to the consumers, setting a price too low for a high quality product just to make it more affordable, is also not a good strategy. It says to the consumers that the product is not of the premium quality they expected, and deteriorates the brand image of the company.
Therefore, market skimming strategy is ideal for cases in which the product is innovative or does not have competition. Also, if the new product is of a strong brand, the company can use premium pricing because the consumers are less likely to switch to another product because of their loyalty with the brand. Apple Computers is an ideal example of such a case. Even though the company has several close competitors that offer the same products with the same specifications, it’s the perception of the brand that lets the company demand a higher price for its products.
In contrast to the market skimming pricing, this strategy focuses on attracting a large number of buyers through setting a low price for the product. This pricing strategy is usually adopted when there are a number of sellers in the market and the company wants to penetrate into the market quickly. When the consumers see the low priced product that offers them the same product that other companies are offering, they are attracted towards the low priced one. In this way, the company is able to attract a large ...Download file to see next pagesRead More
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