Price and Value

Dogs have low market shares in a low-growth market and tend to generate either a loss or a relatively low profit. They usually take up more management time than necessary and, unless they can be strategically justified, are candidates for abandonment. Problem children Problem children are sometimes called question marks, because with a low share but high growth prospects, considerable investments are needed for initially low returns.

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Problem children are cash users but can also become potential stars. Management must decide if there should be an investment made in the product or withdrawal it is a risk. My product will fit into this category because it is a problem child it can either make a huge return on investment or can become a waste of money if it is withdrawn due to unsuccessful sales in the market. With a problem child a lot of advertising and promotion is needed to make sure that the product is heading in the right direction. In order to make a problem child sell successfully there must be a lot of advertising and promoting, so that people are aware of the new product and will have an interest in buying it.

Price Penetration Pricing Penetration pricing involves the setting of lower, rather than higher prices in order to achieve a large, if not dominant market share. This strategy is most often used by businesses that are willing to enter a new market on a small market share. Penetration pricing is only possible where demand for the product is set to be elastic, demand is price-sensitive this will attract new customers and make existing customers buy more due to the low price.

A successful penetration pricing strategy may lead to large sales in the market shares and therefore lower costs. Penetration strategies are often used by businesses that need to use up spare resources. The main disadvantage of implementing a penetration strategy is that competitors will supply a copy of the product and may sell for a lower price cancelling out any price reduction of the original product. A second potential disadvantage is that customers may note the image this may associate when customers buy regarding price with quality.

Price Skimming Skimming is when a product is approached with little competition in the market and so is charged at a reasonably high price. Success of price-skimming strategy is made from the inelastic demand that enables the high pricing to do well for a short while. After the success of the high pricing, when there is enough profit the product is then lowered in price to attract new target segmentation, this strategy has advantages. The product will require effective development and research which may cost a lot, this will also be the outcome in promoting, advertising however price-skimming will return some of the set up cost. Skimming leaves the option of dividing price into different segmentations that will allow the organisation to get maximum profit from its entire market segmentations.

Cost-plus pricing Cost-plus pricing is the amount added to a unit for example an organisation produces 400 units of clothing cost of 12,000 the unit cost will be �30. A percentage of the price is added. For example, fashion items are usually marked up by between 100 and 200%. Cost-plus pricing is popular there are many risks that are also involved if the price is set too high the sale will fall short of expectations. Cost-plus pricing shows a production-based approach to the market. Customers’ perceptions are not taken in to account. Cost-Plus pricing is easy to calculate and this method does not need to refer to price elasticity of demand, prices can be varied from the outcome of customers’ response to the product.

Competition-based pricing Competitive rivalry makes it difficult for customer to decide what product to buy, there maybe a little difference between them. It is down to the pricing and marketing in order for the product to sell well. Both competitors will pay close attention to each other’s product. For example digital camera may cost �49.99 but a rivalry competitor which has a product very similar with all the features the other camera has however maybe a slightly lower in price e.g. �44.99 this will affect the organisation which sells its camera for �49.99 and they may well change the price or offer a better deal.

Price and Value Customers’ expectations are different when it comes down to price and value. Some customers will want to pay a low price for a reasonably good quality product, other customers maybe willing to pay more for a better quality product. Price and value can eliminate customers from different segments if its not balanced. If a product is sold for a high price you will lose customers but a lower price may indicate that the pricing suggests low quality. Value includes getting more for the same price this will make customers buy. I have decided that the pricing of my pizza will be lower than an average pizza price from pizza hut. I have chosen penetration-pricing meaning the pizzas will be sold for a low price at first until the product has made an impact on the pizza market.