Pricing Strategy for Our New Product Is

Pricing strategy for our new product is going to be penetration pricing. This strategy involves undercutting the competition on price in order to win market share. Undercutting does not necessary mean that the firm with follow a cost leadership strategy, but it implies that the firm will price below the prices of competing products with similar attributes. A penetration pricing strategy implies that the firm will maintain the low price in order to build market share.

The price may be raised at a later date when the product has an established share of the market, signaling an end to the penetration pricing strategy. Value pricing is a tactic that can be used. Ultimately, the pricing strategy needs to convey to the consumer that this product is a good value relative to similar products that are on the market.

Baker (2009) notes that value pricing both "offers the firm the ability to exceed the client's expectations" and "prequalifies the client to ensure that they are a good fit for the firm." Pricing at this level reflects that the customer is receiving good value -- and sets the price in accordance with that value. The penetration pricing strategy reflects the initial lack of brand equity, but as that brand equity is built up and the customers become familiar with the product's value, then the transition to value pricing can be made.

There are no real legal or ethical issues related to such pricing tactics. There are some pricing tactics that are illegal or only quasi-ethical, but penetration pricing is not one of them and neither is value pricing. While the company might be aware that eventually the price will increase from the introductory rate, the consumer is not tied to future purchases. Such pricing is only illegal/unethical when combined with a contract for future purchases that end up being at a higher price that the consumer anticipated.

In our situation, each purchase of the product is going to reflect a new, independent purchase. If any consumer does not like the new price, he/she will not need to buy the product. Thus, there are no legal or ethical issues with the pricing strategy that has been proposed by management for this new product. The distribution channel is another critical issue for a new product launch. The most important component is the retailer, because the product must reach the customer in order to be relevant.

Today's retail market is complex, encompassing a wide range of store types, including online retailers. The choice of retailer must fit the product, however, lest the firm revisit the Pets.com experience of selling online goods that simply are not conducive to online retailing. In this instance, mass market retailers are a good fit with the new product. These retailers reach a broad audience in North America, something that fits with our product launch strategy that emphasizes market penetration. This channel supports penetration pricing as well.

There is some question as to whether the mass market retailer channel is best for value pricing, however. Many stores in this channel do not generally do price promotions, as penetration pricing would be interpreted to be. As a result, they may resist price increases in the future. This is a problem that would need to be resolved in order to make the most effective use of this channel to reach the broad market. From the retailer channel we work backwards for distribution.

In this instance, most mass market retailers work on a just-in-time or similar situation. This demands that our logistics network be highly effective, delivering to their warehouses in a timely manner. As a result, we must choose the right trucking firm to work with us. Our retail channel partners may have some recommendations for us of firms that are consistently reliable. Most of the retail partners we are suggesting (Wal-Mart, Target, Costco, etc.) act as their own distributors.

We deliver from our factory via truck to their warehouses, and they organize shipments from there. These firms have daily sales figures that they communicate to us, and that will help us determine our production schedule. The distribution strategy fits the product well, because we want to reach the broad market. In addition, this distribution strategy will force the company to be highly organized at the manufacturing stage, and ultimately that will result in lower costs of production.

Such an outcome would help us to be profitable even during the penetration phase of launch. We want to.