Pricing Strategies for Backpacks Essay Example

dramatically rose.

In the fourth quarter the team at mode Accessories had developed a product that they believed would begin to cover former losses and hopefully please the consumer.

Low Price in Introductory Stage:

The initial pricing strategy was focused on creating consumer awareness and penetrating the market. Mode Accessories believed that being the cheapest product on the market, without losing the quality of the product, would gain awareness from the market. It was expected that there would not be an abundance of sales as awareness of the product would not be high. However, the use of penetration pricing, meaning “setting a low initial price on a new product to appeal immediately to the mass market” (Kerin et al., 2008, p 263) was employed to help boost market awareness. The team decided to penetrate the market with a low costing product, being the cheapest of all competitors. The cost to produce the product was $24.00 and the product was being sold for $45.00, meaning profit was $21.00 per unit.

As seen in appendix 1, figure mode accessories (Group 39B) backpack was by far the cheapest product compared to competitors. 154 units were sold in the first quarter. Mode Accessories sold the most units, being 154. However, due to the low profit made of each unit mode Accessories made the lowest amount of revenue, displayed in Appendix 1 Figure 2.

This demonstrates that the penetration pricing strategy was not successful. Mode Accessories did not sell enough units at the low price in order to be competitive with other companies.

If the price was raised to $60.00 per unit mode Accessories

may have been more successful in their attempt to penetrate the market as their product would still have been the cheapest in the market, retaining its appeal, but would have made for profit for the company.

Attempts to Save mode Accessories

The mode Accessories team decided to redesign the product in order to compete within the market. It was essential that the company was able to recuperate expenses from advertising in the first quarter when attempting to gain market attention. mode Accessories completely changed its product in order to appeal to a different market segment. The backpack gained new features that raised the cost of the unit to be produced; in turn the selling price was also modified. This was an attempt at modifying the product in order to better appeal to consumers.

A strategy, outlined by Bylthe (2009), in order to recuperate costs through a higher priced product was employed. In the second quarter mode Accessories sold 106 units, 48 less than the first quarter. However, revenue of $5,763.20 was made, $1,625.45 more than the previous quarter. In effect the approach to raise the product quality along with the selling price was successful, however, mode Accessories was not as successful as other companies (see Appendix 1 Figure 3)

In the third quarter the decision to change the product and target market, essentially modifying the market and product as outlined by Kerin (2008, p…) was made again by the team at mode accessories. Production costs were cut but the price was decreased. This saw a drop in sales and revenue. Therefore, the third quarter was not a success because the market

did not accept the changes in the product.

The fourth quarter proved to be the most unsuccessful for MODE Accessories despite all attempts to produce a product that would suit the needs of the consumer. In this quarter the mode Accessories team decided that the product, distributors or price would not be changed any further. In order to build more customer awareness the focus was placed on advertising. Media spending was capped at $3,000, that way by adjusting the price of the product costs could be recovered.