8. How companies determine the initial price for their products
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Listening
Question:
Using points and examples from the talk, explain how companies determine the initial price for their products presented by the professor.
Preparation time: 30 seconds
speaking time: 1 minute
Texts
Today, we’ll talk about how companies determine the initial price for their products. By that I mean, when they first introduce a product in the market. There are different approaches and today we’ll discuss two of them. They’re quite different, each with their own advantages.
One approach or strategy sets the initial price of the product high followed by a lower price at a later stage. Why? Well, when introducing a new product, companies want to build a high-quality image for it. Products that cost more are believed to be of higher quality. So during the early stages of the product’s life cycle, companies can make very high profits from consumers willing to pay more for a high quality product. And although consumers know that prices would eventually go down, they are also willing to pay more to get the product sooner. This approach works very well with oh innovative high-tech products for example. Now, just think about when video recorders or video cameras or even cell phones first came out, they were very expensive. But then they became much more accessible.
Another very common strategy sets the initial price low. Now, this happens when the market is already saturated with the product. The strategy is to undercut its competitors. Say there’s a newly starting computer maker trying to gain market share. So what’d they do? Well, they offer a computer at an affordable price, lower than existing brands. By doing this, the company appeals to new consumers who won’t probably be even interested in getting a computer. And well of course, to existing consumers who might now be tempted to switch brands. Now how does this company make profits with this low price computer? Well. One thing that’s often done is to encourage their customers to buy accessories also manufactured by them like printers or software for example.
Explanation
The summary of the lecture
The professor explains how companies determine the initial price for their products.
There are two different approaches.
One approach is to set the initial price of the product high and then lower the price later.
The reason behind this strategy is to give a high-quality image to their consumers because people usually believe that the higher the price of a product, the higher the quality the product.
For example, when innovative high-tech products first come out, they are expensive but early-adaptors will not wait until the price of the products go down.
Therefore, with this strategy, companies increase their profit.
Another approach is to set the initial price of products low.
This strategy is used in the market where tons of competitors already exist.
For example, when a new company enters a market and sets the price of its product lower than that of other existing companies, the company may appeal to new consumers as well as to existing customers. The company can make up for their reduced profits due to the low price by selling accessories for the product such as printers or software in the case of computers.
Sample answer
In the lecture, the professor explores how companies determine the initial pricing strategy for their products, highlighting two distinct approaches.
The first approach involves setting the initial price of the product high and subsequently lowering it over time. This strategy aims to cultivate a perception of high quality among consumers, as many individuals equate higher prices with superior product quality. For instance, when cutting-edge high-tech products are initially introduced to the market, they often carry premium price tags. Despite the high cost, early adopters are willing to pay the price to access the latest innovations. Consequently, companies employing this strategy can capitalize on consumer perceptions of quality and profitability.
Conversely, the second approach entails setting the initial price of the product low. This strategy is typically deployed in highly competitive markets where numerous competitors already exist. By offering products at a lower price point, new entrants can attract both new customers and existing ones seeking more affordable alternatives. To compensate for the reduced profit margins resulting from lower prices, companies may opt to sell complementary accessories or add-ons, such as printers or software for computers, thereby bolstering overall revenue.
Question:
Using points and examples from the talk, explain how companies determine the initial price for their products presented by the professor.
Preparation time: 30 seconds
speaking time: 1 minute
Texts
Today, we’ll talk about how companies determine the initial price for their products. By that I mean, when they first introduce a product in the market. There are different approaches and today we’ll discuss two of them. They’re quite different, each with their own advantages.
One approach or strategy sets the initial price of the product high followed by a lower price at a later stage. Why? Well, when introducing a new product, companies want to build a high-quality image for it. Products that cost more are believed to be of higher quality. So during the early stages of the product’s life cycle, companies can make very high profits from consumers willing to pay more for a high quality product. And although consumers know that prices would eventually go down, they are also willing to pay more to get the product sooner. This approach works very well with oh innovative high-tech products for example. Now, just think about when video recorders or video cameras or even cell phones first came out, they were very expensive. But then they became much more accessible.
Another very common strategy sets the initial price low. Now, this happens when the market is already saturated with the product. The strategy is to undercut its competitors. Say there’s a newly starting computer maker trying to gain market share. So what’d they do? Well, they offer a computer at an affordable price, lower than existing brands. By doing this, the company appeals to new consumers who won’t probably be even interested in getting a computer. And well of course, to existing consumers who might now be tempted to switch brands. Now how does this company make profits with this low price computer? Well. One thing that’s often done is to encourage their customers to buy accessories also manufactured by them like printers or software for example.
Explanation
The summary of the lecture
The professor explains how companies determine the initial price for their products.
There are two different approaches.
One approach is to set the initial price of the product high and then lower the price later.
The reason behind this strategy is to give a high-quality image to their consumers because people usually believe that the higher the price of a product, the higher the quality the product.
For example, when innovative high-tech products first come out, they are expensive but early-adaptors will not wait until the price of the products go down.
Therefore, with this strategy, companies increase their profit.
Another approach is to set the initial price of products low.
This strategy is used in the market where tons of competitors already exist.
For example, when a new company enters a market and sets the price of its product lower than that of other existing companies, the company may appeal to new consumers as well as to existing customers. The company can make up for their reduced profits due to the low price by selling accessories for the product such as printers or software in the case of computers.
Sample answer
In the lecture, the professor explores how companies determine the initial pricing strategy for their products, highlighting two distinct approaches.
The first approach involves setting the initial price of the product high and subsequently lowering it over time. This strategy aims to cultivate a perception of high quality among consumers, as many individuals equate higher prices with superior product quality. For instance, when cutting-edge high-tech products are initially introduced to the market, they often carry premium price tags. Despite the high cost, early adopters are willing to pay the price to access the latest innovations. Consequently, companies employing this strategy can capitalize on consumer perceptions of quality and profitability.
Conversely, the second approach entails setting the initial price of the product low. This strategy is typically deployed in highly competitive markets where numerous competitors already exist. By offering products at a lower price point, new entrants can attract both new customers and existing ones seeking more affordable alternatives. To compensate for the reduced profit margins resulting from lower prices, companies may opt to sell complementary accessories or add-ons, such as printers or software for computers, thereby bolstering overall revenue.