问答题

4.ALG Co is launching a new, innovative product onto the market and is trying to decide on the right launch price forthe product. The product’s expected life is three years. Given the high level of costs which have been incurred in developing the product, ALG Co wants to ensure that it sets its price at the right level and has therefore consulted amarket research company to help it do this. The research, which relates to similar but not identical products launchedby other companies, has revealed that at a price of $60, annual demand would be expected to be 250,000 units.However, for every $2 increase in selling price, demand would be expected to fall by 2,000 units and for every $2decrease in selling price, demand would be expected to increase by 2,000 units. A forecast of the annual production costs which would be incurred by ALG Co in relation to the new product are as follows:
Required: The sales director is unconvinced that the sales price calculated in (b) above is the right one to charge on the initial launch of the product. He believes that a high price should be charged at launch so that those customersprepared to pay a higher price for the product can be ‘skimmed off’ first. Required: Discuss the conditions which would make market skimming a more suitable pricing strategy for ALG, andrecommend whether ALG should adopt this approach instead.(5 marks)