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Sometimes the best thing is to do nothing. PriceGain's expertise helped a major manufacturer avoid a costly mistake in new product planning.
Situation: New low-cost products were being considered to
meet competitive offerings.
Our client is a leading global manufacturer of IT and electronics products. The company was facing intense competition for a line of consumable electronic goods in a developing market. The majority of competitors were offering lower quality products at substantially lower prices. To compete in this environment, our client considered introducing low-cost products of its own. But how should these new items be priced to ensure profitability and market share gains?
Solution: Determine if lower quality products could
damage existing sales.
We established the price elasticity of competitive products, our client’s existing products and potential new products through consumer research. We also created a model of the value chain from the manufacturer to the end-users for all existing products, as well as the new products that our client was considering. Using this data, we were able to analyze the effects of the new product range based on different price points in terms of profitability and market share.
Results: Lower-margin products were not introduced
and revenue losses were avoided.
The analysis showed that the new low-cost, low-margin product would substantially cannibalize existing high-margin products. There would be a small gain in market share but at the cost of a 10% drop in profits. Our client decided not to introduce the low-cost product in the developing market and avoided major profitability losses.
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