Should companies sell unique products at higher prices than other competitors or reduce the costs and sell products for cheaper. Which strategy should a company choose?
There are different form of strategy in a business or launch stage company growth or maturity in a market. In general a company that launches for the first time must choose a strategy of differentiation and focuses on a market niche. The product must be original and unique which allows for the differentiation between the various other existing products s hard market. Undertaken in a growth phase could put on the production capacity by increasing it to sell at a competitive price on the market. With a mature product now has the choice to diversify its production have a product range to polyy satifaire more customers on the same market to maintain its turnover by developing any other strategy or production focusing.
If you look at the way that General Motors has traditionally manufactured, marketed and sold its vehicles, it used both strategies in a lifecycle model. The cars were arranged as follows (old template): Chevorlet - 'Cheap' and Plentiful; Pontiac - a few more luxuries, slightly more expensive, fewer produced than Chevorlet; Oldsmobile - even more luxuries, pricier, lower production; Buick - first stage luxury vehicle that is more expensive and more exclusive; Cadillac - most expensive and fewer manufactured. The idea was that General Motors wanted to capture the car-buying public throughout their purchasing lifecycle. Younger buyers with less money would start with the Chevrolet and as they grew in earning power, they would move 'up the line' in purchasing until they would purchase Cadillacs at the height of their earning power. In that way, General motors used both strategies to maintain brand loyalty throughout a buyer's lifetime.
If we use to select the competitive strategy of the company, Michael Porter's theory, there are two dimensions to choose from: Leadership in Cost or differentiation. The company selects the source of their competitive advantage according to the following criteria: 1) The concept of value that the client 2) The strengths and weaknesses of the company against these criteria 3) The strengths and weaknesses of competitors against criteria.
The best possible pricing strategy should be attached to customer satisfaction and be implementing optimal selection criteria calibrating between quantity, quality, cost and timeliness. Company adapting the best possible pricing strategy should also consider vertical or horizontal influences in SC within a market oriented society.
There can not be one answer to this question. It has to be context specific, and will depend on the product strategy of the organization. If the good being produced is of price-competitive type, the price has to be low and competitive. Also, if the product life-cycle is in declining stage, again the price will be low. Where the product is in growth stage it can be high. If the organization produces giffen goods (a term used in economics--goods that may have upward rising demand curve) then the price should be the highest possible. Also, if the product has quality and innovation focus with unique features, then the price is likely to be high.
Now a days the competition has become competitive. If you produce low price product with low quality, they will get market initially but will not survive in the market. The unique products at higher price do not increase market share and cost of production goes up.
Hence for long run a company should look for higher volume of fairly low prize but at good quality. The cost of production can be brought down by automation & mass production which will increase profit in long run and will get good market share. It earns reputation and money in long run. you have to be patient
I do not believe there is a right or wrong answer to this interesting question - ultimately it comes down to company culture and the realisation that each approach demands a quite different strategy
A company can do both, and provided that it can keep the two businesses separate there is no reason why this should not work e.g. when Dow Chemical Co introduced Xiameter to address a new niche, they kept the traditional business (high quality, service enhanced products) separate from the new low cost, low price "clicks only" business. By contrast, when BA introduced GO it was an unmitigated disaster because they tried to run the two business through the same set of resources and overwhelmed the core business with low cost, low margin new business. Definitely the Killing Fields.
But there is another side to this. There is no guarantee that merely by selling at a very low price you will succeed. It is about the differential value offered. If two companies offer a similar product at an identical price, the one with greater attractiveness to customers in the target segment will win. Price to the user is only one part of that value proposition. There are many other elements to consider.
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