New Products Entering the Market
Our company has been producing some products and we have had power in the market. Our products have been distinctively different products from the substitute products in the market and people have preferred our products in last five years. Our company also could manage the process of developing new products through some R&D works in our laboratories. New technical features of our products have provided us a power in the market against the rival companies and we have been the leader.
However, in the recent times, we observe that other companies have started copying our products and after sale services (Liu and Ryzin, 2005). Unfortunately, we observe that our rivals could manage to produce very close substitutes to our products and they have created a network for after sale services to the customers and we are losing our power in the market. We have had the monopoly rights on our products and we could stop them copying our products, however, last year our rights are expired and we can continue our monopoly power anymore.
We should make an important decision now and change our production and marketing policies. There are some alternatives for us. Our main problem is that we have lost our monopoly power and unfortunately our rivals have the capacity to catch us. What can we do?: 1) Invest more in R&D works and create new products, 2) Depending on Market Analysis, develop more differentiated products so we can create an image for the customers, 3) Change pricing strategies and change our products’ comprehension by the customers, 4) Create a network and start producing more complex products with an association of other companies from other industries.
Investing More In R&D Works
Our production licenses are expired and we have lost our monopoly power in the market, thus we need to be able produce more new products with higher technologies. This way we can show people that our products are still one step ahead from our rivals. Consequently, if we can convince the customers, even we ask higher prices for our products, they will be fine with this. Because they will believe that they will really get a better products with more options and more features when they buy our products. Therefore we will keep our monopoly power.
The bad thing about this strategy, we should continue our R&D studies and this way we always be one step ahead, however, that means we will spend more for these studies and it might be costly for us. Thus we have to charge higher prices to the customers, then we need a very well designed advertising strategy and works to make people believe that it is worth buying our products compared to some other far substitutes at lower prices. A better advertisement strategy will bring more costs to us.
We should create a model and see how we can manage these costs and pricing strategy simultaneously. If we can create a financially sustainable model for a strategy like that, it will be a very positive development for the company (Ho and Zhang, 2005).
Differentiating Products
Developing our R&D works and creating new products strategy might be very costly, if we see that we cannot create a financially sustainable model, we have another option: Differentiate our products to make people believe that our products are different from the close substitute products (Santos, 1991).
Differentiating products requires an R&D work also, however, we do not need spend too much resources for this. So it will less costly relatively. What we will do is to see what customers truly like and what they want to see in the products. We will make some market analysis and we will determine what kind of changes will make our customers more satisfied. After collecting this information, we will start our laboratory studies and we will try to make our products different from other substitute products. When a customer holds one of our products, he or she will say that our product is better than other rivals’ products, even though there is not much difference between the products, and the difference between products will not so costly for us.
The decision making process requires a very important information: cost of differentiating our products, market research costs, advertising costs and what price range we can apply to our products in the real markets to sell it at a desired level of sale. If our costs of differentiating our products are less than the gain from the higher prices that we can apply in the market, then we can say that our policy will sustainable financially (Winer, 1986).
However, there is a very high risk also: other companies make a contra-advertisement and can make our customers believe that our products are not really different from theirs, or customers can realize this by themselves. To cope with this risk, we need a very well developed advertisement and promotion strategies.
If we can make people believe that our products are more valuable respectively, then we still can continue our monopoly power in the market temporarily. To be able continue our monopoly power, we need a dynamic market research and a dynamic R&D works to differentiate our products continuously ((Winer, 1988).
Changing Pricing Strategy
Another way to continue our products in the markets is to change our pricing strategy. That is a kind of differentiation also, however, this time we will change our pricing settings (Divinney, n.d.). We will lower our R&D works and some other costs and by using these resources to make some more advertisements. We will lower our products prices and give a message to our customers saying “buy higher quality products at lower prices”. This way, if we can make people believe that our products are cheap with better quality, then we can increase our sales and totally we can make more profits (Schmidt, 2003).
However that includes a risk also. Because that strategy might damage our company’s image in the public. Most people believe that cheap products cannot be high quality and that is why they become cheaper. Maybe, in the short run, our customers will believe that we give a favor them by lowering the prices, however, in the long run, if we continue our lower pricing strategy (Bitran and Caldentey, 2003), they will start believing that our products are not high quality anymore. If we will apply a lower pricing strategy that cannot be a long term strategy. In the future, we need to spend more in R&D works again.
Creating Production Networks and Producing Complex Products
Another way can be creating some cooperation with some other companies in the same industry or from other industries and with their contribution, we can produce more complex products that satisfy more needs of customers with one product. It might be very costly to cooperate with other companies. Thus we need to know exactly what we want from another company and we need to develop very well designed cooperation.
However, if we really do not have to, I do not suggest this strategy. Because, managing relations with the other companies can be very risky for our company and if we fail to manage, we might lose all our power in the market (Tversky and Kahneman, 1991)
References
Ho, T.-H., J. Zhang. 2005. Does format of pricing contract matter? Working paper, University of California, Berkeley.
Liu, Q., G. van Ryzin. 2005. Strategic capacity rationing to induce early purchases. Working paper, Columbia University.
Santos, M. 1991. Smoothness of the policy function in discrete time economic models.
Econometrica, 59 (5) 1365 - 1382.
Winer, R. S. 1988. Behavioral perspectives on pricing: Buyers' subjective perceptions of price revisited.
T. M. Divinney, ed., Issues in Pricing. Lexington, MA: Lexington.
Bitran, G., R. Caldentey. 2003. An overview of pricing models for revenue management.Manaufacturing & Service Operations Management 5 (3) 203 - 229.
Schmidt, Ulrich. 2003. Reference-dependence in cumulative prospect theory.Journal of Mathematical Psychology, 47, (2) 122{131.
Winer, R. S. 1986. A reference price model of demand for frequently-purchased products. Journal of Consumer Research 13 (2), 250-256.
Tversky, A., D. Kahneman. 1991. Loss aversion in riskless choice: a reference dependent model.
The Quarterly Journal of Economics, 106 (4) 1039{1061.
