Mid-Term Assignment 2013 - Pricing Startegies
Mid term assignment
Pricing strategies
Lecturer: Stuart Francis
Student: Bailly Florent
Topic: Flat screens, flattering prices case study
London Campus
London Campus
Academic year: 2012/2013
Academic year: 2012/2013
Question 1
By 2001, pioneers in LCD television market have decided to use a pure skimming pricing strategy, which involves charging a relatively high price for a short time (Investopedia, 2013). This strategy is usually employed when a new, innovative product is launch onto the market. At that time, LCD television market was considered as an oligopoly – only three companies were competing in the market (Hitachi, Philips, and Sony). Pioneers benefited from an inelasticity of demand and were able to “skim off” customers who were willing to pay premium price to have to product sooner, therefore, benefit from high short-term profit due to the newness of the flat LCD television. By setting up high prices initially, pioneers could build a strong high-quality reputation. Furthermore, this strategy allowed the firm to reduce prices when new competitor entered the market. By contrast, setting up low initial prices would be difficult to increase without damaging sales.
Question 2
As pioneers profitability increased, competitive suppliers such as Motorola, Westinghouse, Dell and even Sharp entered the market. As the market became more competitive prices started to go down as new entrant used more a penetration approach. For instance when Dell entered the market in 2003, even though flat screens were still in the early adopters stage of the innovation adoption lifecycle, the company decided to drop the prices (Raju, Jagmohan S. and Zhang, Z. John, 2003). By pushing prices downward, Dell as well as Sharp were able to gain resonance with more affordable product to mid-range consumers, and increased their market share. Consequently, consumer willingness to get new television technologies intensified and sales rose significantly (Raju,
Pricing strategies
Lecturer: Stuart Francis
Student: Bailly Florent
Topic: Flat screens, flattering prices case study
London Campus
London Campus
Academic year: 2012/2013
Academic year: 2012/2013
Question 1
By 2001, pioneers in LCD television market have decided to use a pure skimming pricing strategy, which involves charging a relatively high price for a short time (Investopedia, 2013). This strategy is usually employed when a new, innovative product is launch onto the market. At that time, LCD television market was considered as an oligopoly – only three companies were competing in the market (Hitachi, Philips, and Sony). Pioneers benefited from an inelasticity of demand and were able to “skim off” customers who were willing to pay premium price to have to product sooner, therefore, benefit from high short-term profit due to the newness of the flat LCD television. By setting up high prices initially, pioneers could build a strong high-quality reputation. Furthermore, this strategy allowed the firm to reduce prices when new competitor entered the market. By contrast, setting up low initial prices would be difficult to increase without damaging sales.
Question 2
As pioneers profitability increased, competitive suppliers such as Motorola, Westinghouse, Dell and even Sharp entered the market. As the market became more competitive prices started to go down as new entrant used more a penetration approach. For instance when Dell entered the market in 2003, even though flat screens were still in the early adopters stage of the innovation adoption lifecycle, the company decided to drop the prices (Raju, Jagmohan S. and Zhang, Z. John, 2003). By pushing prices downward, Dell as well as Sharp were able to gain resonance with more affordable product to mid-range consumers, and increased their market share. Consequently, consumer willingness to get new television technologies intensified and sales rose significantly (Raju,