Branching Sims Output Documen-Study one-Topic 3

Background

Scheren manufactures razors and blades for personal grooming. To grow the business, they are thinking of creating an electric razor as a new product line. The market for electric razors is highly competitive and consumer-driven. As Director of Marketing, you meet with the CEO and agree to a marketing strategy focusing on electric razors for men with mass market appeal. You adopt the slogan: "Expecting more but paying less". The CEO asks you to determine the price to charge for the new product.

Selecting a Pricing Method

Price must exceed cost to make a profit, but price cannot exceed the customer's perception of value or you will have difficulty selling the product. You are considering basic methods for determining price, either a cost-based approach or a value-based approach. Although both cost and customer perceptions of value are important, for now you focus on one aspect.

To help make a decision, you ask the Director of Finance and the Director of Customer Service for advice. Listen to their opinions, and then decide which approach you would like to take to evaluate the best price. Once you choose an approach, you will use it to determine what to do next.

You chose

OPTION 2

Value-based pricing approach. Make sure customers perceive the price as a good value.

Selecting Good-Value Pricing or Value-Added Pricing

You selected a value-based pricing approach. Value-based pricing assesses the buyers' perceptions of value as the key determinant of pricing. There are two standard models you can use: good-value pricing or value-added pricing.

To help you better understand the difference between the good-value and the value-added approaches, you meet with the Director of Customer Service. Listen to what she has to say and then make your choice.

You chose

OPTION 2

Value-added pricing

Value-Added Price Determination

You have selected value-added pricing as your approach. You find out that the most popular electric shaver manufacturers are Braun, Panasonic, and Remington. They have great prices and tend to be the best when it comes to attractive features. In general, prices are around $25-$35 at the lower end of the market, and above $175 for a deluxe model.

To help decide on price, you asked the Director of Customer Service to form a customer focus group and ask how much they would be willing to pay for a basic electric razor and for each benefit added to the offer. You told her that your objective is to compete in the mass market for entry-level electric razors, and set a "value-added" price. You also asked the finance department to estimate the costs of providing each feature. The results are shown in the Table of Perceived Customer Values and Costs.

Advisors:

Director of Customer Service

If you just want a basic electric shaver, our review indicates that rival products have no quick charge feature, and they take almost eight hours to charge. The blades are sharp but do not have pulsating technology. The basic models can be used either corded or cordless, but are not water resistant, cannot be rinsed out after shaving under the tap, and cannot be used in the shower. These products are in the $25 to $35 price range. It is clear that you can add a number of important features that will delight the customers at a reasonable cost to the firm.

You chose

OPTION 2

Price range: $36-$59

Changes in Sales Volume

After the product has been in the market for a while, you find that actual demand is only 90% of what you had originally forecast. Market studies indicate that demand is highly dependent on price. What pricing action, consistent with your original pricing method, should you take?

You chose

OPTION 2

Take no action. Demand level was not a factor in setting price.

Change in Market Pricing

Eventually, you find that your competitors begin to lower their prices. Your costs have remained stable. What action should you take, consistent with your pricing method?

You chose

OPTION 2

Do nothing.

Critique of Value-Based Pricing

The company's financial consultants criticise your choice of value-based pricing, saying that cost is all that matters in setting price. How do you respond?

You chose

OPTION 3

Value and price are both important considerations in setting price.

Feedback

You earned 90 percent.

Well done. To improve your skills while improving your score, read your textbook and review your course materials before attempting this simulation again.