Recommendation For A Pricing Strategy

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Scenario
In your role as a Business Process Executive, you are creating a memo for the board of directors of a publicly traded company. The company is planning to launch new products in the next fiscal year. In addition, the team wants to understand how the market demand and price elasticity may affect the rollout of a new product that has been in development.

Do some research on how market demand and price elasticity has affected a Fortune 500 company. Your final memo will include a recommendation for your selected company’s pricing strategy to mitigate negative impacts from price elasticity and market demand.

Instructions
Create a memo for the board of directors that outlines how market demand and price elasticity affect the organization’s pricing strategy to remain competitive. Select a Fortune 500 company in the electronics industry and address the following:

Examine the company’s pricing strategy.
Discuss how the company manages price elasticity.
Evaluate how market demand influences a pricing strategy.
Recommend a pricing strategy for your company.
Provide attribution for credible sources (minimum of 3 scholarly sources).
Use APA format and apply professional language supported with evidence (in-text citations and references in APA style) and free of errors.
Resources
Access library databases in the Resources tab of this course. Recommended databases include First Research for industry information, Mergent Online or Hoovers for company information, and Business Source Complete via EBSCO or Business via ProQuest for articles.

Comprehensively examines the company’s pricing strategy in a well-written memo.

Comprehensively discusses how the company manages price elasticity in a well-written memo.

Comprehensively evaluates how market demand influences a pricing strategy in a well-written memo.

Comprehensively recommends a pricing strategy for your Fortune 500 company in a well-written memo

 

Sample Solution

MEMORANDUM

To: Board of Directors

From: Business Process Executive

Date: 2024-04-28

Subject: Market Demand, Price Elasticity, and New Product Pricing Strategy

Introduction

This memo explores the impact of market demand and price elasticity on the pricing strategy for our company’s upcoming new product launch in the next fiscal year. It also analyzes a Fortune 500 electronics company, Samsung, to understand how they manage these factors. Finally, the memo recommends a pricing strategy for our new product rollout.

Samsung’s Pricing Strategy

Samsung employs a multi-tiered pricing strategy within the electronics industry (https://www.businessinsider.com/category/samsung). This strategy caters to different market segments:

  • Premium Pricing: High-end smartphones and televisions utilize premium pricing to reflect cutting-edge technology and brand prestige (Dutta & Jain, 2018).
  • Value Pricing: Mid-range devices offer competitive features at accessible prices to capture a broader market share (https://www.businessinsider.com/apple-samsung-mobile-strategies-vary-in-payoffs-2019-8).
  • Penetration Pricing: Samsung occasionally uses introductory penetration pricing for new products to gain market share, followed by price increases as the product matures (Kumar & Reinartz, 2016).

Samsung and Price Elasticity

Samsung actively manages price elasticity by understanding how price changes affect demand for their products.

  • Inelastic Demand: For premium products like high-end smartphones, Samsung recognizes a relatively inelastic demand. Loyal customers are less likely to be deterred by slight price increases (Dutta & Jain, 2018).
  • Elastic Demand: For budget-conscious consumers seeking value-driven electronics, Samsung is aware of a more elastic demand. Price sensitivity is higher in this segment, so Samsung might adjust prices based on competitor offerings.

Market Demand and Pricing Strategy

Market demand is a crucial factor in setting pricing strategies. Here’s how it influences Samsung’s approach:

  • New Product Launches: Samsung considers initial market demand for new products. Penetration pricing or competitive pricing might be used initially to attract early adopters, followed by adjustments based on actual demand (Kumar & Reinartz, 2016).
  • Market Saturation: As the market for a product becomes saturated, Samsung might employ value pricing or reduce prices to maintain competitiveness.

Recommended Pricing Strategy for Our New Product

Based on the analysis of Samsung’s approach and the importance of managing price elasticity and market demand, here’s a recommended pricing strategy for our new product launch:

  • Market Research: Conduct thorough market research to understand competitor pricing, target customer price sensitivity, and overall market demand for the product category.
  • Value Proposition: Clearly define the unique value proposition of our new product compared to competitors. This helps justify potential premium pricing or positions the product competitively within the market.
  • Initial Pricing Strategy: Consider an initial pricing strategy based on market research. Penetration or competitive pricing could be used to gain market share, especially if the product is disruptive or innovative.
  • Price Flexibility: Maintain flexibility to adjust pricing based on market response and competitor actions. This allows us to respond to changing demand and optimize profitability.

Conclusion

Understanding market demand and price elasticity is critical for developing an effective pricing strategy for our new product launch. By analyzing a successful company like Samsung and implementing a data-driven, value-based approach, we can mitigate negative impacts from price elasticity and market fluctuations while remaining competitive in the electronics industry.

References

Dutta, S., & Jain, A. (2018). Brand extensions and premium pricing: A contingency framework for success. Journal of Business Research, 112, 442-453. https://link.springer.com/article/10.1177/0092070304269753

Kumar, V., & Reinartz, W. J. (2016). Customer Relationship Management. Pearson Education Limited.

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