Marketing What happens if we price above the expected range?


Demand falls to zero at $5.00 above the expected range. Keep in mind that the expected price range falls by $0.50 each year. 

For example, suppose that last year's reports say that the top of the range was $30.00. Therefore, the top of the range this year is $29.50. Between $29.50 and $34.50 demand falls in a linear fashion. In a "buyer's" market, at $34.49 you enjoy microscopic but non-zero customer survey scores, and could conceivably make a sale. At $34.50 demand is zero. The distinction can be important in segments where a "seller's" market has evolved. That is, your analysis indicates that industry capacity, including second shift, cannot meet demand. In that situation even products with microscopic customer survey scores will stock out as customers search for anything that can meet their needs.

Tip: If you are looking at a seller's market, give yourself an "F". (Exception- if you are the only company left in the segment, give yourself a "B-" and your competitors an "F".) A seller's market is proof that your production plan did not mesh with your marketing plan. You did not anticipate the demand, did not create adequate capacity to serve the market, and offered an opportunity for a competitor to enter the market unopposed. Although you can adjust your marketing plan by raising price, slashing quality, eliminating promo and sales budgets, and producing with a full second shift, these tactics have obvious self-destructive aspects. Instead, act immediately to correct the problem by adding capacity, either directly or via a new product. The sooner you act, the more likely it is that you can prevent competitors from responding.