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Services Offered

Product Analysis

SMD provides analysis and consulting services and on to assist in product design and pricing decisions from the development and design phases, through product launch and over the product life cycle.

Product Development
Ideally businesses should begin thinking strategically about product decisions as early as the research and development phase. Product design decisions should consider how important features are to customers in influencing satisfaction and what it costs to deliver on those features at different levels of performance. By measuring how effectively competitors deliver on those features the product design team can identify potential opportunities and provide guidance with regard to which features provide the greatest profit potential.

Product and Product Line Design
Features should be added only if target customers are willing to pay more than it costs to provide them. When choosing among possible combinations for a single product offering it is generally a good idea to choose to design a product with the set of features that maximizes the difference between what target customers are willing to pay.

The problem becomes more challenging when determining the optimal design of the products to be offered in a product line. If customers are free to choose from the entire line there is the potential for products targeted toward more price sensitive customers to cannibalize sales from higher priced products intended for customers who are less price sensitive or who place a higher value on differentiating features.  In such cases it may be necessary to deviate from the product design and pricing policy that would be optimal if customers could be restricted to purchasing the offering targeted toward them. Often this includes a combination of reducing the price of high end products or lowering the quality of low end products.

Another opportunity that should be considered by firms that offer multiple products is the prospect for combining different products and services into a single bundled offer. Bundling may encourage the purchase of products and services that would not be purchased separately. Often this means charging a lower price for the bundled offer than would have to be paid if the products and services in the bundle were to be purchased separately. This is a good way of inducing trial for products and services that may offer a high value to customers that they don't currently recognize.

Bundling may be beneficial to the customer in that makes purchasing easier. A single purchase decision regarding a bundle is much easier than a bunch of individual decisions concerning each component of the bundle. Unless the customer has specific needs, purchasing a pre-specified bundle that has been designed by those who understand the current and potential uses of the bundled product's specific components will often lead to simpler and better purchase decisions. Further if the different components need to be assembled or integrated, purchasing a bundle may reduce these burdens on the customer, thereby providing additional value. For example, one may think of a PC as a bundle of a case and different components. Those were technically inclined may decide to buy the individual components separately; however, most customers would prefer to purchase a PC in which the components are preassembled. To the extent that a bundled offering adds value to the customer relative to purchasing the different components individually, product managers may find that they can charge more for a well conceived bundle than they would charge for the components purchased individually.

Bundling may also benefit the seller by discouraging a customer from purchasing one or more components of the bundle from a competitor. This practice is becoming increasingly common in the telecommunications industry where multiple services such as local and long distance wireline, wireless voice and data, internet and cable services are offered his bundles at discounts relative to the prices charged for these services when purchased à la carte.  This practice makes purchase decisions and bill payment easier for the customer and makes them less likely to respond to competing offers on one or more of the individual components.

Deciding what products and bundles to offer and how to price them can be challenging but are often a key to the success of a business. SMD can help by developing estimates of how much different customers are willing to pay for current and potential product features, identifying which customer segments offer the greatest profit potential, and suggesting a set of individual product and bundled offerings that will maximize your chances of success in the marketplace.

Product introduction strategies
Often long-term considerations should be addressed when deciding how to price a product when it is introduced. When there are impatient customers who place a high value on the product it may make sense to charge an introductory price that is higher than the one that would best satisfy short run objectives. Such a "skimming strategy" would make it possible to capture higher margins from these customers and establish a high quality image. A high price may also be perceived as less threatening to competitors and would be less likely to provoke a price war. Over the long run, price could be lowered to serve the more price sensitive segments of the market.

In contrast there are circumstances in which it makes sense to set a price that is lower than would be optimal in the short run. If the new product is perceived is risky, a low price may encourage trial. If the product's quality is indeed worthy of a higher price it should be possible to raise price in the future to capture the value the product provides once customers can verify its quality. A low introductory price might also be desirable when a product is new to the world and establishes a new category. By encouraging trial a low "penetration" price may help build awareness, which will tend to encourage trial by customers who tend to be reluctant to buy until the product's value is demonstrated by the adoption of the product by others. In some cases being the first to market may also create switching costs which will reduce the products vulnerability to competitive attacks in the long run. Caution should be used when implementing a penetration price strategy because it often is difficult to raise prices after customers come to expect the low price at which the product was introduced.

A new product pricing strategy can be quite complex. SMD can help by identifying the issues that are relevant to a product launch and associated pricing decision by employing a combination of qualitative analysis, analytics and market modeling tools to help ensure that the launch has the greatest opportunity for success.

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