Marketing strategies for new product launch

Marketing and Pricing a New Product

In defining the pricing for any given product, its cost structure, perceived value due to its uniqueness or differentiation, availability or lack thereof of substitutes, and leadership position in creating an entirely new market all must be taken into account. In defining the pricing strategy for BabyWatch, a highly differentiated product that anticipates when a baby will need to have its diaper changed, eat and sleep there is significant value to parents and a high degree of innovation as well. The intent of this analysis is to recommend a pricing strategy for this product.

Defining the Price/Quality Relationship

Inherent in the pricing strategy of every product is the relative position of its value and differentiation relative to substitutes. This is called the price/quality relationship as it delineates how pricing dictates the perception of value over time for any product or service (Boyle, Lathrop, 2009). This is also comparable to value-based pricing of services where the inherent value of the insight, guidance and services delivered are monetized, not just the hours expended (Abele, Elliott, O'Hara, Roegner, 2002).

As the BabyWatch is highly predictive of the needs and wants of infants, and given the fact parents routinely lose significant amounts of sleep either anxiously anticipating or being awoken in the very early hours of the morning, there is great value in the new product. As a result, the pricing strategy needs to follow the price/quality relationship model and seek a premium price due to the predominant substitute being either lack of sleep or exceptional levels of vigilance on the part of parents. For parents of babies, sleep is more valuable than gold. Having a clock that would give them insight into when the babies needed to be changed, fed, played with or held would be invaluable because it would take the anxiety and guesswork out of care, thereby freeing up their time to sleep or take care of other tasks.

Pricing Optimization

Getting an optimal price for the BabyWatch requires the company to consider the opportunity costs to parents and the value of sleep, predictability of routine often when there is none, and the cost of substitutes. When all of these factors are combined the high level of differentiation for this clock becomes apparent. There is no suitable demand curve to plot pricing optimization from, a common strategy in commoditized products and services (Ketzenberg, Zuidwijk, 2009) so the BabyWatch must be value-based priced as a result (Abele, Elliott, O'Hara, Roegner, 2002). For parents who have an infant at home within the first six months schedules are completely redefined and sleep is at a premium. The value of a good nights' sleep and the ability to set predictable schedules for the care, feeding, changing, and attending to an infant is equivalent to the opportunity cost of lost sleep. Taking the salary of a professional who earns $60,000 a year for example a given week represents $1,153. The value of having a very productive start to their week is 20% of this or $230. For those professionals earning a higher salary the value of a productive start to their work week increases correspondingly. Assuming the target market is middle to upper income families the target price, from this value-based standpoint, could be $200 or more. Parents would be willing to have their sleep schedules predictable to make sure their work weeks were started productively and quickly. The arguments of a recessionary economy forcing prices down (Caudillo-fuentes, Li, 2010) need to be taken into account. Yet sleep, time management, being alert in one's job, are all critically important duri9ng a recession to retain one's job. The price point of $200 would further show the quality of the device and its value as part of staying rested and alert for work.