Product Pricing Analysis

The hatched area in Figure 2, thus represents a time period during which the company reaps maximum 133 Analysis of pricing strategies for new product introduction Biren Prasad Pricing Strategy Practice Volume 5 Number 4 1997 132 141 Time-to- market Product and services Product complexity Time-to-market Product complexity Very simple Simple Complex Very complex 2-3 years 3-4 years 4-5 years 5 years World class 1980 1985 1990 1995 2000 Timeline Decreased time-to- market Increased level of complexity Figure 1 A case of a constantly moving target Elapsed time in years (average) Period of profitability Period of profitability Useful product life span Development cycle-time 15 10 5 0 Automobile assembly Automobile parts Aeroplane assembly Defense electronics Consumer electronics computers Heavy construction equipments Heavy machinery Machine parts Figure 2 An industry-wide trend showing useful product lifespan and start of pay-off period Page 3 profits.. The total profit margins (TPM) of the two compa- nies can thus be expressed as follows: At time t T Total profit margins (TPM) for company E: TPM e (t) = S e (t) נ P(t) C e (t) t T (10) TPM (t) = 0 t T 136 Analysis of pricing strategies for new product introduction Biren Prasad Pricing Strategy Practice Volume 5 Number 4 1997 132 141 Company L sales Cl (t) Company E profit margin Company E introduction (time t = 0) Company L introduction (time t = T) Tlife Tn Time t Key C: Cost P: Price E e: Early introduction L l: Late introduction t = Time elapsed after initial introduction T = Time when company L introduced its product Market price P (t) Price advantage of early introduction Company L profit margin Cost advantage of early introduction Cl (t) Ce (t) Unit cost/ price Company E cost Ce (t) Figure 5 Cost and price advantages of early product introduction Page 6 TPM for company L = 0 for t T, since the product does not exist.. (21) Revenue generated in the case of on-time market entry and delayed market entry can 138 Analy