Explain the two pricing approaches for pricing a new product.
Small companies can use a number of pricing strategies for new products. Some business owners use a cost-plus method for pricing. They calculate production and advertising costs then add a percentage to their unit costs. Other companies have a specific return on investment in mind for new products. Whatever the case, business owners must study the market and competition before setting a price for new products.
Demand
A company will usually study demand for industry products before setting a new product price. Demand may be relatively elastic in the industry, meaning consumers are sensitive to price changes. Therefore, the quantity that consumers demand will decrease as prices increase. Contrarily, demand may be highly inelastic. Inelastic demand means consumers are not overly concerned with price. Companies that produce highly technical devices often experience inelastic demand.
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