Identify a product that you think you have paid either too little for or too muc

Question

Identify a product that you think you have paid either too little for or too much for. Identify the pricing strategy you think the company is trying to implement (based on the assigned reading) and evaluate the effectiveness of the strategy. Use at least two sources to justify your answer. You should also use outside research (at least two sources), evaluate the effectiveness of the strategy, and address the competitor’s response to the pricing decision.

Reading:

Introductory Pricing Strategies

Think of products that have been introduced in the last decade and how products were priced when they first entered the market. Remember when the iPhone was first introduced, its price was almost $700. Since then, the price has dropped considerably even for new models. The same is true for DVD players, LCD televisions, digital cameras, and many high-tech products. As mentioned in Chapter 7 "Developing and Managing Offerings", a skimming price strategy is when a company sets a high initial price for a product. The idea is to go after consumers who are willing to pay a high price (top of the market) and buy products early. This way, a company recoups its investment in the product faster.

The easy way to remember a skimming approach is to think of the turkey gravy at Thanksgiving. When the gravy is chilled, the fat rises to the top and is often “skimmed” off before serving. Price skimming is a pricing approach designed to skim that top part of the gravy, or the top of the market. Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering.

In contrast to a skimming approach, a penetration pricing strategy is one in which a low initial price is set. Often, many competitive products are already in the market. The goal is to get as much of the market as possible to try the product. Penetration pricing is used on many new food products, health and beauty supplies, and paper products sold in grocery stores and mass merchandise stores such as Walmart, Target, and Kmart.

Another approach companies use when they introduce a new product is everyday low prices. That is, the price initially set is the price the seller expects to charge throughout the product’s life cycle. Companies like Walmart and Lowe’s use everyday low pricing. Lowe’s emphasizes their everyday low pricing strategy with the letters in their name plus the letter “t” (Lowest).

Explanation / Answer

The most recent purchase that I made was a Smartphone from Xiaomi RedMi. It was a product of a relatively unknown but upcoming company.

It was using penetration pricing for the simple reason that it was unknown and wanted to make a breakthrough in the market. The price that I paid for it was quite low as other phones in the same category and similar configurations were priced higher. It became more popular by setting up customer care centers so if consumers had issues they could take their phone to get repaired.

As mentioned the company used a penetration pricing strategy but this strategy was being used by other smartphone companies too. The winning factor was the technical help available in case of any problems. Another reason they had to apply a penetration pricing method was that there were entering a cluttered market. There were a lot of competitors and there were similar phones with similar configurations available so to win over the market they had to do something extra apart from the pricing.

However, the penetrating pricing method was very effective and they managed to earn a large market share. They have been doing so well that they have started coming out with different variations of the product and slowly coming out with models which are priced high.

The competition in this market segment has no choice but to keep a penetration pricing method but the winner is the person who is offering something else apart from the attractive prices.

There are many companies who know that price now does not win over customers. They expect low prices but what other offers are available apart from the low prices are what wins over the customers and gets a large market share.

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