Samsung is a multinational corporation best known for the high quality electronics. The mobile phone production enterprise has been in the limelight for different reasons including competition from its major competitors such as iPhone. The Samsung Galaxy S5 is the company’s latest release in the mobile phone industry. The new phone has different improved capabilities over the previous version (Samsung Galaxy S4). The improvements on the new product include a better operating system, improved internal memory, greater processing speed, long battery life, and a wider amazing screen among a host of other improvements and new introduction of features. Before the official release date of the product, the company announced preorder deals to interested customers to submit their payments, even before seeing the product. One promise about the preorder deals is the fact that the customers were guaranteed cheaper prices as opposed to higher prices upon release. The preorder deals were about $860 as opposed to the real price of the product upon its release at about $1,150 (http://www.samsung.com/global/microsite/galaxys5/features.html)
Price Skimming
The loyal customers of the company have a greater attraction to the latest technology and trending devices. Most people have the higher affinity for the new Samsung Galaxy S5 and the buzz on social sites about the anticipations of the product is already soaring with millions of reviews about the product (Gould, 2014). Following the response from the prospective buyers, the company already conducted a research study about the reception of the product by offering preorder deals, which have already been taken as the customers are opting to take the offer of $290 off the price of the product upon its release. Even though this represents bundling in pricing, I would use the price skimming technique to maximize the profits for Samsung Galaxy S5.
Since the company has its loyal customers, who are willing and able to pay for the product at the prevailing price at the early stages of its introduction, this strategy would ensure that the company makes a high number of sales at higher prices before the other factors force the price to go down. Some of the factors that make people to buy goods at higher prices, especially at their introduction stages include ostentation and the amount of disposable incomes of the consumers (Dürr, & Göx, 2013). However, before the prices succumb to the declining costs of production, competitive pressures from iPhone and other competitors such as HTC, and buyer behavior (Harvard Business School), which will eventually reduce the prices of the product, I would ensure that the customers who will pay the premium prices for immediate consumption of the product and those will not wait before buying the new product buy it at higher prices (Miller, & Bertus, 2013). I would charge $1,200 upon introduction and later reduce the price according to the reductions in purchase volumes to about $1,000 after the first 9 months and $900 after one and a half years.
This pricing technique would increase the supply, demand, and demand for the product in the first year of introduction. The supply, demand, and profit will further increase in the next phase of the pricing after the reducing the price since most of the customers who were willing but unable to buy the phone at the extra $200 would afford it alongside the former buyers. The price skimming strategy is appropriate for this product because of the wide customer base and loyalty to the product.
References:
Samsung Galaxy S5 features. http://www.samsung.com/global/microsite/galaxys5/features.html
Gould, M. (2014). Pricing Strategies. Pricing Strategies -- Research Starters Business, 1.
Miller, L., & Bertus, M. (2013). An Exposition On The Mathematics And Economics Of Option Pricing. Business Education & Accreditation, 5(1), 1-16.
Dürr, O. M., & Göx, R. F. (2013). Specific investment and negotiated transfer pricing in an international transfer pricing model. Schmalenbach Business Review (SBR), 65(1), 27-50.
Harvard Business School. (June 17, 1993). Price Discrimination. Harvard Business Review.
