12-28-2011, 05:46 PM
Solution:
Neven is actually now starting price skimming. (Charge a high pnice because you have a substatial competitive advantage. However, the advantage is not sustainable. )
"Skim the cream" pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. This expression comes from the farming practice of milking cows - the cream rises to the top and you skim it off. The advantage of using a Skimming price policy is that you can theoretically get the maximum profit from each level of customer
Skimming Pricing
"A Skimming policy is more attractive if demand is inelastic says the Shapiro text - remember inelastic means there are no dose substitutes
- products that people will pay a high price for because there is nothing else they can buy the is close to the item
~ ~ Prof. Allen says
"A skimming pricing policy involves setting prices of products relatively high compared to those of similar products and then gradually lowering prices. The skimming price is the highest price possible that buyers who most desire the product will pay (skim the cream off the top -- skim the innovators). This market segment is more interested in quality, status, uniqueness, etc. This policy is effective in situations where a firm has a substantial lead over competition with a new products
2. Do you think there will be a fall in sales? How long should the sales fall b nullify the benefits of price increase? (15) Solution:
The high price tends to attract new competitors into the market, and the price inevitably
falls due to increased supply. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.
Neven is actually now starting price skimming. (Charge a high pnice because you have a substatial competitive advantage. However, the advantage is not sustainable. )
"Skim the cream" pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. This expression comes from the farming practice of milking cows - the cream rises to the top and you skim it off. The advantage of using a Skimming price policy is that you can theoretically get the maximum profit from each level of customer
Skimming Pricing
"A Skimming policy is more attractive if demand is inelastic says the Shapiro text - remember inelastic means there are no dose substitutes
- products that people will pay a high price for because there is nothing else they can buy the is close to the item
~ ~ Prof. Allen says
"A skimming pricing policy involves setting prices of products relatively high compared to those of similar products and then gradually lowering prices. The skimming price is the highest price possible that buyers who most desire the product will pay (skim the cream off the top -- skim the innovators). This market segment is more interested in quality, status, uniqueness, etc. This policy is effective in situations where a firm has a substantial lead over competition with a new products
2. Do you think there will be a fall in sales? How long should the sales fall b nullify the benefits of price increase? (15) Solution:
The high price tends to attract new competitors into the market, and the price inevitably
falls due to increased supply. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.
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