New Product Development

Pricing 12/20/09 AEC 320 Robbins F' 2004

NPD Pricing Objectives

 Explain the pros and cons of the incremental pricing approach.

 Give 6-8 components of the “release price” including ceiling and floor
pricing.
 Know that pricing for the largest market share may not maximize
profit and tell why.
 Give alternatives to discounting during launch, and explain why they
are important.
 Know when penetration pricing is a good strategy & explain why.

12/20/09 AEC 320 Robbins F' 2004

What is the two-edged pricing sword?

 Charge too much and the product

______________.
 Charging too little is even more
dangerous!
1. Once a product hits the market it is
almost _____________________
__________________________.
1. 80-90% of release prices are
______________________!

12/20/09 AEC 320 Robbins F' 2004

Classifying New Products
 New-to-the-World:  ____________________
Innovative products.
 New Product Lines
 Additions to Existing  ____________________
Product Lines: Extensions.
 Product Improvements:
 Repositioning: Existing  _________________ , or
products targeted to a new
market.
 ___________________

12/20/09 AEC 320 Robbins F' 2004

What is the incremental pricing
approach?

 Starts with _________________

___________________.
 Adds enough to cover the new
offerings ______________.
 Adjust that amount based on
____________________.
When does it work Best?
 For _______________
 & _____________new products

12/20/09 AEC 320 Robbins F' 2004

How would one calculate the release
price?

 Begin by defining the ________ price.

 Use ____________________ and/or.
 ___________ analysis.
 Establish the ______________.
 Gauge the market’s ___________.
 Establish the _______________ price.
 Determine ______________________.
 Launch

12/20/09 AEC 320 Robbins F' 2004

What are the pros and cons of the
ceiling price?

 It ensures that each

________________ will be
considered.
 However, there may be:
1. Insufficient ______________,
or
2. it may leave
_________________________
_______________ for
competitors.

12/20/09 AEC 320 Robbins F' 2004

How would one calculate the price
floor?

 _________________________ pricing works here.

 Needs an accurate cost analysis ______________
_________________________________________
_______________________________________.
 Be careful of ______________________________
_________________________ (for spreading of fixed
costs!)

12/20/09 AEC 320 Robbins F' 2004

 Why is it not always wise to go for the
price that would return the largest
market segment?

 Does maximizing volume maximize profit?

 The trade-off is ___________________________ profits.
 A low reference price may trigger ______________.
 The lower price won’t allow the _____________________
________________________________.
 It could ________________ existing products
 (may be _____________________________).

12/20/09 AEC 320 Robbins F' 2004

 What are some important pricing
considerations during launch?

The first six months or year are critical to a new product.

 Discounting __________________ the reference price.
 Alternatives are;
1. ______________________ generally,
2. __________________________ get free samples
3. Free ____________________.

12/20/09 AEC 320 Robbins F' 2004

 When should penetration pricing work?

 When high __________________________________.

 When you have a _____________________________,
1. through _____________________________________,
or
2. _________________________.

12/20/09 AEC 320 Robbins F' 2004

THE END

12/20/09 AEC 320 Robbins F' 2004