Certainly, initiatives that show that it is a good corporate citizen enhance its image. But it expects it to be good for business as well. Its customers, especially those born after 1980, are increasingly concerned about how the products they use impact the environment and the people who produce them. Also, Walmart believes that many of these initiatives will help streamline supply chain processes and therefore provide additional financial benefits to its suppliers and customers. Consider, for example, that an energy-efficient fluorescent light bulb costs $3 and is expected to last 6,000 hours. Alternatively, a conventional light bulb costs $1 but its average life is only 1,500 hours. Even though the fluorescent bulb is expected to last four times longer than a conventional bulb, it costs only three times as much. Using the cost of ownership method, and considering the cost per hour, the fluorescent bulb manufacturer could charge $4 for each bulb to give it an equivalent cost to a conventional bulb. However,
given its research indicated that many consumers would be reluctant to spend $4 for a bulb, the manufacturer chose to charge only $3, thereby offering customers greater value. Although value-based pricing strategies can be quite effective, they also necessitate a great deal of consumer research to be implemented successfully. Sellers must know how consumers in different market segments will attach value to the benefits delivered by their products. They also must account for changes in consumer attitudes because the way customers perceive value today may not be the way they perceive it tomorrow. Is the improvement value on the BlackBerry Q10 sufficiently greater than competitive products so that a higher price can be charged for it? NEW PRODUCT PRICING STRATEGIES Developing pricing strategies for new products is one of the most challenging tasks a manager can undertake. When the new product is just another “me-too” product, 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 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. Let’s turn our attention to two distinct pricing strategies for new products: skimming and penetration. Price Skimming In many markets, and particularly for new and innovative products or services, innovators and early adopters (see Chapter 8) are willing to pay a higher price to obtain the new product or service. This strategy, known as price skimming, appeals to these segments of consumers who are willing to pay the premium price to have the innovation first. This tactic is particularly common in technology markets, where sellers know that Call of Duty fans will wait in line for hours, desperate to be the first to own the newest version. These innovators are willing to pay top dollar to get the new product and its exciting enhancements. After this high-price market segment becomes saturated and sales begin to slow down,
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- Fall '11