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Pricing Management
Determinants of Pricing Strategies
In pricing a new, specialized electronic product, the product development, engineering, marketing, accounting and finance teams internally will rely on internal and external factors to initially set the price. Pricing objectives and the frameworks they require will determine the internal factors included and excluded from the long-term pricing strategy overall (Avlonitis, Indounas, 2005). The intent of this analysis is to evaluate the other internal factors that will affect the pricing of a new, specialized electronic product.
Analysis of Internal Factors Affecting Pricing
Based on personal experience managing high technology products and from anecdotal interviews with members of product marketing teams in high technology businesses, the decision of whether to choose a value-based vs. cost-based approach to pricing is foundational to how many other internal factors affect price (Wagner, 1981). Value-based pricing will have a direct effect on the price elasticity of demand for a given product (Michalakelis, Dede, Varoutas, Sphicopoulos, 2010)...
Value-based pricing of high technology-related products can either greatly accelerate or decelerate the speed of adoption of a given product as well (Michalakelis, Dede, Varoutas, Sphicopoulos, 2010).
A second series of factors are evident in how the product is pricing from a costing perspective. When a high technology product is priced using cost-based and cost-plus pricing, there is more of a focus on how to arbitrate and manage transfer pricing across global or international boundaries more effectively (Casey, 1985). Transfer costs' affects on elasticity over the life of a given new product, especially in high technology or electronics, can often be more rapid than plans initially anticipate (Lucke, Philipp, Schumacher, 2005). This often occurs when a business has a widely distributed business model and separate divisions located throughout different regions of the world, serving different markets. The ability of a product development and planning organization to unify these aspects of pricing into a cohesive pricing model that defies price erosion…
Bibliography
Avlonitis, G.J. & Indounas, K.A. 2005, "Pricing objectives and pricing methods in the services sector," The Journal of Services Marketing, vol. 19, no. 1, pp. 47-57.
Casey, M.P. 1985, "International Transfer Pricing," Management Accounting, vol. 67, no. 4, pp. 31.
Lucke, D., Philipp, J.H.S. & Schumacher, D. 2005, "A Note on R&D and Price Elasticity of Demand," Jahrbucher fur Nationalokonomie und Statistik, vol. 225, no. 6, pp. 688-698.
Michalakelis, C., Dede, G., Varoutas, D. & Sphicopoulos, T. 2010, "Estimating diffusion and price elasticity with application to telecommunications," Netnomics: Economic Research and Electronic Networking, vol. 11, no. 3, pp. 221-242.
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