Free Essay

New Product Positioning

In: Business and Management

Submitted By rajeshranjan1982
Words 690
Pages 3
Assume, price of BTP is PB & C&P is PC.
There are four situations with different values of PA & PB = (3, 3), (3,4), (4,3) & (4, 4) | 3, 3 | 3,4 | 4,3 | 4,4 | BTP | 125000 | 200000 | 75000 | ? | C&P | 100000 | 25000 | 150000 | ? | TOTAL | 225000 | 225000 | 225000 | ? |

At price of (3, 3), the no. of units are distributed as 125000 for BTP and 100000 for C&P.
Whenever the price of C&P is increased, the no. of units are reduced to 25000 which means those units are purchased by some people who are brand conscious about C&P. So these people will buy C&P, at whatever the price is.
Similarly, when the price of BTC is increased, the no. of units purchased by dedicated customer is 75000.
So, at price level (3, 3), out of total 225000 units , (75000+25000) are purchased by loyal customers and rest 100000 nos. are purchased by people mainly concerned about price.
Now, after 20% reduction in demand, the demand will be = (225000*0.8) =180000
Out of these 180000 units, loyal customers will purchase 75000 units of BTC & 25000 units of C&P. Now we’ve to find out what will be the distribution of rest 80000 units which will be purchased by price seeking customers.
At price level of (3, 3) | Value seeking | Price seeking | % of price seeking of total price seeking | BTC | 75000 | 50000 | 40 % | C&P | 25000 | 75000 | 60 % |

So out of these 80000, BTP will be = ( 80000* 40 %) = 32000 C&P will be = (80000 * 60%) = 48000
Hence, total BTP units = ( 75000+32000) = 107000 (approx. 100000) Total C&P units = (25000+ 48000) = 73000 (approx. 75000)

Now please go through the excel sheet.

Now we’ve to check if there is any dominant strategy or not, which one is Nash equilibrium on the basis of Profit and Contribution. And which parameter is followed by which organization. On that basis how much price should be charged.

On basis of Contribution : | $3 | $4 | $3 | 225250, 178000 | 352000, 67450 | $4 | 207000, 273300 | 297460, 201480 | C&P

BTC

Suppose, C&P charge is $3, then BTC will charge $3 as it will generate more contribution.
Now, if C&P charges $4, then also BTC will charge $3 for same reason.
Hence, BTC’s dominant strategy is $3.
Similarly C&P’s dominant strategy is $3 as they will charge it irrespective of the price of BTC.

On basis of Profit : | $3 | $4 | $3 | -38750, -57400 | -20400, -71425 | $4 | 3000, -20400 | 45582, 2920 | C&P

BTC

Suppose, C&P charge is $3, then BTC will charge $4 as it will generate more contribution.
Now, if C&P charges $4, then also BTC will charge $4 for same reason.
Hence, BTC’s dominant strategy is $4.
Now as response to the price of BTC, C&P should set price as $4. But in that case BTC’s profit will be 15 times more than if C&P set price as $3. So C&P will charge $3 to reduce profit of BTC even after incurring own loss.
Now let us see the situation when BTC will decide on basis of profit whereas C&P will go for contribution.

| $3 | $4 | $3 | -38750, 178000 | -20400, 67450 | $4 | 3000, 273300 | 45582, 201480 | C&P

BTC

From here we can see that from profit point of view, BTC will go for $4 whereas from contribution point of view C&P stands for $3.
Now let us see why BTC is looking from profit point of view whereas C&P is considering contribution as their decision making tool.
BTC is going to do expansion of business, henceforth they will have to incur a huge amount of fixed cost which is not captured in contribution. So they want to charge $4 to maximize profit for covering fixed cost. Whereas C&P is charging $3, mainly to delay the expansion of BTC, because it wouldn’t be possible for BTC to expand without reaching the higher profit.…...

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