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whim! If you volley back and forth as to whether you should purchase the item, it will already be sold.So, if you must have the Nova Armored Baby Beaton handbag from Burberry, you can have it for 45 percent off the list price, or $877 instead of $1595, as long as you are on Hautelook.comwhen the sale starts. But is it really 45 percent off?—45 percent off what? What does the $1595 reference price really mean? Is it the manufacturer's suggested retail price (MSRP) that is placed on the price tag? Did it ever sell at any retail store or online site for $1595?A reference price like $1595 gives consumers a cue as to what the handbag should be worth. Research shows that the greater the difference between a suggested retail and a sale price, the greater the perceived value. The better the deal, the more consumers will be attracted to buy. Therefore, if the online sites, or any retailer for that matter, inflate the suggested or original price, the percentage discount can seem better than it actually is.Occasionally these private sale sites have inflated the suggested retail prices to show a greater percentage discount, although they claim that the original prices they list are accurate and come from the manufacturer. Any errors, they argue, are because the manufacturer gave them the wrong price or it is due to employee error. For example if the suggested retail price of the Burberry bag was actually only $1100 instead of $1595, then the bag was only discounted 20 percent. A customer in the heat of the moment may buy the bag because it is reported to be 45 percent off, but if it were 20 percent off, they would not have purchased it.Should the private sale sites be required to substantiate their reference prices? Which price should they use as the reference price? Is it their responsibility if the manufacturer gives them
the wrong pricing information? Do you think they are intentionally misleading their customers?Some retailers use an everyday low pricing (EDLP) strategy (left), while others use a high-low pricing strategy (right).New Product Pricing Strategiesp. 422Explain the difference between a market penetration and a price skimming pricing strategy.Developing pricing strategies for new products is one of the most challenging tasks a manager can undertake. When the new product is similar to what already appears on the market, this job is somewhat easier because the product's approximate value has already been established. But when the new product is truly innovative, or what we call “new to the world,” determining consumers' perceptions of its value and pricing it accordingly becomes far more difficult.
The world's cheapest car, for example, is the Nano, which recently began to appear on New Delhi's streets. Most people in this city use scooters, bicycles, or even horse-drawn carts to get around. The Nano tried to convert them into users of safer, enclosed cars, but could not increase the price substantially if it hoped to do so. At 1300 pounds, the Nano weighs less than half a Honda Accord. It also