Recommendation For A Pricing Strategy
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.