The high rate of new high-tech product releases often leads to large product ranges that are frequently updated. So, for every new product belonging to a range, a correct understanding and forecasting of customers' perceptions is a necessity, as far as pricing is concerned, to balance two risks.
Usually, new products are targeted to the segment with the highest willingness to pay in order to recover from the big fixed development costs. Then lower-priced versions are sold at much lower prices, because of a modest incremental cost .
However, except for new entrants that have no history in the business whatsoever, the pricing of a new product (even a revolutionary one) must take into account the context of the company's existing product mix.
On one hand, if a new product is introduced at a price that is too high compared to the product range, the risk exists that sales will not take off because customers continue to prefer an older model with a more attractive price-performance ratio. On the other hand, price is the determining element in curbing or accelerating cannibalization of existing products. Indeed, a new product that is introduced with a very low price compared to the rest of the products in a range can "ruin" these other products, leaving large quantities of unsold goods, or can generate a demand that the company might not be able to satisfy immediately. If the company enjoys a technological monopoly, one solution is not to offer a special pricing for customers who have already bought an earlier version of the product .
Furthermore, a decrease in price for an already existing product can accelerate its phaseout and prepare its replacement. Actually, few customers are ready to purchase an older generation of the product, at a reduced price when they anticipate that a significant new version is about to be launched . Consequently, a price reduction of a mature high-tech product, which can be only 1 or 2 years old like some consumer electronics products, will not increase volume but will completely kill margins. In high technology where dynamics are a requirement for survival, this type of price policy is often necessary but not always without difficulties.
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