Question: By the early 70's you realised the market for toys in the US is about to change. What strategies would you recommend for the future (next 10 years) in terms of new products and prices in order to match supply with demand in a profitable manner?
Solution:
Earning maximum profit is the objective of all firms. In order to earn maximum profits firms have to analyze various factors like demand and supply, prices, government regulations, environmental changes. It also has to take care of political issues, economic issues, social issues, technological issues etc. In early 70's we can find a radical shift in toys market in US. People started buying toys for their children. People find that toys are good for the overall development of their kid. So demand for toys starts increasing. As the demand start increasing, players from other market start entering into toys market. And suddenly the competition starts increasing. Increasing competition and opening of new discount stores connive the existing toy manufactures to reorganize about their marketing strategy. So, technological innovations star taking place and prices start decreasing.
I would recommend following strategies for the future terms for the new products and prices.
(1) Manufacture cheaper version of net products: As a strategy to reduce prices, the firm can remove a few parts from the product design. It can remove the parts that are less of value in the overall value of the product. However, it will be a sacrifice from the quality, still it a handy tool to lower down the prices to compete with the increasing competition.
(2) Start producing as per the original design and let the buyers accept the product: In this strategy, Fisher Price can produce the products as per the original design without sacrificing in quality element, charge the price as it wants and let the buyers accept the product and price. However, this idea seems to be less effective as per the current market scenario. But as the market has accepted all the products of Fisher price till now it is fairly possible that the market will accept this product also. This strategy will work as skimming the market as Fisher price has thought of charging premium price for its newly launched ATV explorer.
(3) Start producing various versions of AWT Explorers: To apply this strategy the firm will have to segment the market first. For each segment of market it can produce the toy. Here, the quality of each version will differ. For example, the firm can segment the customers into three categories i.e. rich, upper middle class and lower class. Then it will produce the toy as per the affordability of people of these three categories. Cheaper products will be produced for lower class people whereas the most expensive products will be produced for people of rich class.
I would suggest Fisher price to manufacture various versions of ATV product (strategy 3). For all versions it can charge different prices. Each version will be suitable for a different class of people. It can have premium versions for rich people, moderate version for upper-middle class people and a normal version for others.
Premium version will be qualitatively better than other two versions. So as the version approaches to normal version, quality starts decreasing. It is basically a mass marketing strategy wherein the firm is trying to capture all types of buyers.
It should also issue discount offers on the basis of seasons and product versions to attract more and more buyers. So the strategy is based on both marketing skimming penetrating approach. It is charging premium prices from rich customers and charging lower prices from others.
Conclusion: the pricing strategy depends upon the level of competition and market situations. We have discussed several strategies here in this text. The firm should time to time keep on changing the strategy. It can also come up with promotional schemes to allure more and more buyers. However pricing based on economic classes seems to be the best strategy. It will help the firm to satisfy the needs of all classes by making it affordable to all.
Final Conclusion
Fisher Price is launching its new product ATV explorer into the market looking at increasing demand of riding toys. The explanation and references shown here says that the firm should launch the product. The main problem it is facing is selection of pricing strategy. Obviously no strategy seems to be sustainable in this changing environment. However the best strategy we suggested is to segment the market based on the economic classes and price the products on the basis of this classification. Fisher price can also launch a cheaper version of ATV explorer with fewer features and see the market reaction before launching its original design. However, with the objective of increasing shareholder's wealth Fisher price is working with consistent growth and higher market share. The new launch will also help the firm in achievement of its objectives.