Stage of the fall, Setting the price of a genuine...

Fall Stage

The commodity ends its existence in conditions of underloading of production capacities. The price is either lower than before, or increases if the lagging buyer. The impact of this situation on prices depends on the ability of the industry or individual firm to get rid of the excess capacity to produce this product and switch to a new product.

Profit and price can fall sharply, but can also stabilize at a low level. In any case, production will be inefficient for any firm.

The company's strategic approach to the problem of price formation depends to a large extent on the ethane of the product's life cycle. Particularly great difficulty is the stage of bringing a new product to the market. There is a difference between the definition of the price for a truly new product (novelty) protected by a patent, and a simulator similar to that already available on the market.

Setting the price of a genuine novelty

A company acting on the market with a novelty protected by a patent establishes either a price for "skimming cream" or a price for introducing it to the market.

With the cream-removal strategy, many companies that create a novelty based on large inventions or R & D results, when the costs of developing and introducing a new product (advertising and other means of promoting goods to the buyer) are too high for competitors to produce a new product raw materials, materials and components are available in limited quantities or rather difficult to sell new products (if the warehouses of resellers are overcrowded, market conditions are sluggish and firm s wholesalers and retailers reluctant to conclude new transactions for the purchase of goods), initially set maximum prices to remove the cream from different segments of the market. In this case, firms tend to maximize profits until the new market becomes an object of competition. The cream skimming method has the advantage under the following conditions:

1) there is a high demand of many buyers;

2) production costs are not so high as to negate the firm's profits.

Using the introduction strategy on the market, the company, on the contrary, sets a relatively low price for a novelty product in order to attract more buyers and win a large market segment. From a purely financial point of view, the position of the firm applying this approach can be characterized as an increase in the mass of profit and return on invested capital, and a significant decrease in profitability. However, by setting low chains, the management of the firm should as accurately as possible assess the possible economic consequences. In any case, the risk is very high, as competitors can react quickly and also significantly reduce prices for their goods. When analyzing the market and making a sales forecast for a company that is entering the market with new products at a price below the average, it must also be taken into account that the price reduction for its product should be quite substantial (30-50%), even at a much higher quality goods and if there are a lot of consumers on the market who are willing to pay for expensive goods of higher quality or higher technical level. At the same time, it does not matter whether it is a question of leaving the company for a new market for it or introducing a new product to a fairly well-known market. In any case, the policy of the firm should be approximately the same - at the expense of significantly lower prices to enter the market, accustom the buyer to the brand of his firm or show him the advantages of his goods and provide the company with a sufficient market share. Only after the product has been recognized in the market and its advertising among buyers has begun, the firm can begin to revise its production program and the prices for the goods in the direction of growth.

Setting a low price gives an effect under the following conditions:

1) The market is very price sensitive, i.e. demand is elastic in price;

2) with increasing volumes of output, the company's costs are reduced;

3) the reduced price does not attract competitors.

Setting the price for a new simulator

Currently, prices for goods and services already available on the market can not be established without constant improvement of the technical performance of the product and improving its quality. Changes should be made taking into account the requests and preferences of individual groups of buyers. At the same time, quality improvement is accompanied by an increase in production costs, and, consequently, an increase in the prices of goods. To successfully compete, the company's management must develop a strategy that ensures a constant reduction in prices for goods and services traditional for this market segment.

Under the conditions of the market, the firm must simultaneously solve two problems: first, constantly improve the quality and improve the consumer properties of goods already on the market and, secondly, continuously lower the prices for them. This requires a radical revision of management systems and organization of production. However, without marketing, these tasks can not be solved.

When you enter the market with a novelty product, a company (theoretically) can take advantage of one of the possible price strategies that take into account the price level and the quality index (Table 4.4).

Strategies 1 and 9 - are adequate in the ratio "quality - of the chain". However, they are intended for groups of consumers that are polar in terms of income. STRATEGY 1 awards the seller a premium for quality, by limited only to a group of high-margin buyers. Strategy 9 is aimed at marginal customers (most consumers try not to buy goods at very low prices). Strategy 2 allows you to attract a large number of buyers to the branded product (and advertising efforts are also needed to explain the significant benefit to consumers in utility). Strategies 3 and 6 pursue the goal of gaining leadership in terms of market share, but with strategy 3, the pace of such a gain is higher. Strategy 4 allows you to quickly recoup the cost of introducing the product to the market. It is risky, because a high price with an average quality can be a significant barrier to demand. Strategy 5 is truly median by parameters and quality, and prices. It is applicable only for some goods of mass demand, assumes a reliable market position of the firm, its established reputation. Strategies 7 and 8 are, from the market point of view, questionable, although they are possible with a monopoly position of the firm.

Table 4.4

The strategy of the relationship between price and quality






1. Strategy



2. High Value Strategy

3. The strategy of deep penetration into the market


4. Overpriced strategy

5. Neutral pricing strategy

6. The strategy of good quality and penetration of the market


7. Buyer robbery strategy

8. Strategy



9. Low value strategy

A novice company should examine the size and growth rates of the market for each of the 9 strategy options and specific competitors within each of them.

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