strategy of pricing of personal computers in the free market

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Introduction

A developing business of information technologies in modern world is the most

dynamical and roughly progressing. The computer techniques are constantly updated, liaison

channels and the software are improved. Software, recovering iron , become in the market the

same goods, as well as consumer goods, raw material, the electric power, etc. Therefore

definition of the price of software product becomes especially actual price. The purpose of the

present work is to analyze the factors which define the price of computers in the free market, and

also widely considering a question of reduction of prices on personal computers when demand is

high enough.

1. Strategy of pricing of personal computers in the free market.

Process of development of strategy of pricing includes six stages. First, the company

defines the purpose of the price offer. Secondly, it estimates a sales volume at each possible

price level, i.e. builds the schedule of a consumer demand. In the third, the company defines a

level of costs (expenses) for development and support of a product. In the fourth, it analyzes the

prices of competitors for similar production. In the fifth, it chooses one of methods of pricing. In

the sixth, establishes a final price of a product.

The possible purposes of the price offerAt the first stage one of the following basic purposes is usually pursued:

Survival;

The maximal current profit;

the maximal growth of a sales volume;

the maximal scope of the market;

Leadership on parameters the price quality.

Survival. Maintenance of a survival becomes the primary goal of the company when itcollides with a sharp competition or change of needs of users. In this case the company is

compelled to reduce of the price a survival more important profit. Until the prices cover costs,

the company continues the activity. However a survival a short-term is a problem. Eventually

it is necessary or to find ways of increase of the prices, or to prepare for liquidation.

The maximal current profit. The true estimation of demand and minimization of costs

allow maximizing current profits. However such approach assumes, that the company is well

guided in tendencies of demand and costs, therefore establishes as much as possible high price.

In practice to estimate these tendencies there is enough difficultly. Orientation to momentary


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financial success and ignoring of other elements of marketing often calls a question into long-

term prospects of the company.

The maximal growth of a sales volume. Orientation to the greatest possible sales volume

conducts to reduction of a unit cost and increase in long-term profit. The establishment of the

low price and weak saturation of the market promote penetration on the market. However it is

possible, if the market is sensitive enough to a level of the price, and also reaction from potential

competitors on reduction of price is guaranteed.

The maximal scope of the market. Use of a method removals creams means release of

the new, unique, high-quality goods under the overestimated price. For adaptation of the user to

the new goods the price which does the goods attractive only for the certain segments of the

market is established. When the sales volume is stabilized, the price decreases for attraction of a

following segment of the market. Application of a method removals cream is possible underfollowing conditions: production costs on a unit of production allow to establish the price

guaranteeing profit; exists high level of demand from a significant amount of users; other

manufacturers do not hurry up to make a competition; the high price supports reputation of

production of the first-rate quality.

Leadership on parameters "price-quality". The offer to users of unique ultrahigh

parameters of quality for similar production can cause and purpose for it of the corresponding

high price. At calculation of such price as the key factor costs of the seller, and perception of the

goods are considered by the user not. The company develops the concept of the goods with the

planned quality for which the consumer is ready to overpay. (Berndt E.R, 1993)

2. The factors influencing pricing.

To pass to a choice of a method of pricing and delimitation from minimal and the greatest

possible prices it is necessary to reveal three cores of the factor:

estimation of consumer (user) demand;

size of costs on development and support of a product;

Value of the prices of competitors on similar production.

Leaning on given about users, costs, the prices and possible price reactions of competitors,

The company establishes concrete value of the price of a product in a range of the

possible prices.

It is necessary to distinguish kinds of the prices in the market of the new goods and

services and approaches to pricing in already available market.


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3. The law of a supply and demand in the market of computers.

The law of the supply and demand, one of basic laws of the market, establishes repeating,

steady causally investigatory communication between three economic events by, a supply and

demand.

Demand ideal need and a real opportunity of the buyer to buy the goods.

The offer is ideal readiness and a real opportunity of a commodity producer to put on the

market the goods.

Set of factors influence a supply and demand: quantity of participants of the market, their

monetary incomes, and a level of scientifically technical progress, a fashion, advertising, etc. but

the main thing certainly is the price for the goods. Between a market price of the goods and that

quantity on which demand is shown, there is an inverse relationship, i.e. increase of a market

price with other things being equal reduces volume of demand. Between a market price of thegoods and that quantity which is offered to the buyer, there is a direct dependence, i.e. the

volume of the offer of the goods increases at increase of the price and decreases at its decrease.

There are some criteria on which it is possible to classify market system:

Character of a competition;

Object of sale and purchase (the market of consumer goods, capitals, a labor, securities,

ideas, information, etc.);

character of sales (wholesale and retail);

The geographical factor etc.

From the point of view of character of competitive struggle distinguish two basic kinds of

the market:

a) the classical market or the market of the perfect (free) competition;

b) Modern the market or the market of an imperfect competition. (Baumol W.,2002)

The classical market is characterized by uniformity of the goods (services) offered on it,

and also absence personal, spatial and time distinctions between separate sellers and buyers.

Besides it assumes, that each of participants of the market possesses the full information

on the market, therefore nobody supervises a market demand. Infringement even one of these

conditions does the market imperfect. Now the perfect type of the market meets seldom enough

and in a greater degree is used as ideal model for the theoretical analysis.

Further we shall consider, how at significant demand for personal computers reduction

of prices in the free market is observed recently.

3.1. Demand for computers


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As on today it is possible to speak, that the market of computers has grown on third.

Sales of computers in the first quarter 2010 have grown on 27,4 %, up to 84,3 million pieces,

analysts Gartner have counted up. Results have surpassed even optimistically forecasts of

analysts. Besides traditional demand for computers in the developing markets, positive dynamics

have shown and the developed countries, which users changed computers for the sake of

Windows 7.

Growth has surpassed even the most optimistically forecasts of analysts, which earlier

believed, that the market of the personal computer will increase for 22 %. The basic contribution

to growth was traditionally provided with developing countries. On the other hand, in the

developed markets the tendency to replacement replacement of old computers by new models

is observed, that also was positively reflected in growth. In particular, the engine to replacement

became start in the past to year of new operational system from Microsoft Windows 7.Influence Windows 7 on sales of computers will be felt down to the beginning of 2011, analyst

Gartner Mika Kitagawa speaks. (Web News, 2010)

The leader of the market still remains HP from shares in 18,2 %. On second place Acer c

14,2 %, on the third Dell 12,1 %.

3.2. Downturn of the price for personal computers at stable demand.

Why computers quickly become cheaper?

The simplest answer: computers become cheaper because accessories from which they

gather become cheaper, and also cost of manufacture of computers decreases. Uniqueness of a

situation with dynamics of computer characteristics/prices directly is connected with uniqueness

of manufacture of computers. Here all differs from any other manufacture, since a degree of

popularity of manufacturers. In all other branches we know brands of manufacturers of end

production which the consumer directly uses. In all spectrums from drinks up to cars to us

names of what goods we are known have bought.

As to cars here we, certainly, know also manufacturers of trunks, but it only the exception

confirming the general rule. Besides trunks is an account material.

In the computer world all on the contrary: the more finely a component, the more solidly

a brand. The famous corporation Intel makes processors and sets of microcircuits (chipsets), on

these chipsets make parent payments less known Fox Conn or Gigabyte, and computers are made

with huge quantity of manufacturers, the majority from which are known only within the limits

of the city. In practice it leads to that the end user himself, or by means of advisers has an

opportunity in the optimum image to define structure of the computer. It turns out, that struggle
http://www.yeehee.com/web-news/http://www.yeehee.com/web-news/


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for the consumer is conducted directly by manufacturers of components. Such competition which

is not meeting more anywhere compels manufacturers of components to reduce of the price and

to improve the products with unprecedented speed.

One more reason of reduction of prices on computers is integration of components. All

we observed process of association of the printer, the scanner, and a fax in the

multipurpose device. Something similar occurs and inside of the system block, only it is hidden

from eyes of the user. Yet so a long time the specification of the system block included a parent

payment, video, and network and sound cards. Now in the majority of sold computers all cards

of expansion are integrated into a parent payment. If earlier it was the decision for poor , the

integrated devices looked obviously defective in comparison with separate colleagues (especially

a sound and video), that the present integrated sound Intel Azalea has superseded from the

market consumer sound cards, having left only dear cards for large gamers and professionalsound producers. In the field of built in video serious progress also is observed, and purchase by

processor firm AMD of one of leaders of processing of images firms ATI promises a new

coil of race of productivity.

It would be desirable to ask such question. Whether reduction of prices on computers is

felt? In my opinion, computers do not become cheaper, and only morally become outdated. And

the price remains former. I shall try to open this question more in detail widely. In occasion of

reduction of prices on the personal computer, it really takes place.

First of all it is connected with become aggravated competition between Intel and ATI on

the one hand, and manufacturers of video cards ATI and NVIDIA. Reduction of prices on

processors and chips for video cards, and also constant occurrence of novelties have led to

reduction of prices first of all on the out-of-date models. But for buyers it practically was not

reflected in the price of the personal computer. Buyers as wanted a house computer for 500-700

$, and want, simply they receive more powerful models for this money. Theoretically it could

lead to increase of profitableness of sales of the personal computer (for example, Pragma some

models sells much more expensively true cost, compensating to these low profitableness of sales

of monitors and printers), but in practice of it does not occur, to other firm starts to sell a similar

configuration more cheaply, bringing down the market.

On the other hand, occurrence Whists has raised requirements to a configuration of the

personal computer, in particular to operative memory. If one year ago 512Mb were optimum, the

minutes 1-2 Gb now are required. Though memory too has promptly fallen in price, therefore, if

one year ago the popular configuration was:


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AMD Athlon 64 3500+ (AM2)/1024Mb DDR-2 533/SATA

160Gb/GF7600SE/DVDRW in cost 700 $ now the model is already removed from

manufacture, and for this money it is possible to buy two-nuclear personal computers:

Intel Core 2 Duo E6320 /1024 Mb DDR-2 667/SATA 250Gb/256Mb GF8500GT

/DVDRW

or

AMD Athlon 64 X2 Dual Core 4800+ /1024 Mb DDR-2 667/SATA

250Gb/256MbGF8500G /DVDRW.

So if to look on the other hand at drop in prices on personal computers first, not especially

they and become cheaper, and secondly, it is necessary to look more closely that becomes

cheaper. Old technologies become cheaper. Manufacturers beat off the investments and further

pass to new technologies, and old sell next to cost. Thirdly, there is a redistribution of the pricesbetween accessories. Video cards rise in price more likely. Memory has risen in price. But DVD-

RW has fallen in price (even if to compare to CD-RW/DVD of two-year-old prescription).

Well and if to speak about seasonal reduction of prices in the summer it is logical demand falls,

and the companies live from a turn. It is more favorable to them to sell more cheaply, but in

warehouses to not hammer.

The main reasons of reduction of prices

Process of reduction of prices on computers is caused by obvious market factors

depreciation of manufacture at release of mass production, a competition in the market, working

off by manufacturers of the basic productions, etc. And, it concerns not only computers, but any

goods cars, mobile phones and so forth it is possible to define principal causes as: the raised

desire of world and capital manufacturers to win the regional buyer, using price pressure; a

reciprocal dumping of some the local players, ready to impose the personal computers at any

cost reducing quality and selling at a sacrifice; progress in the IT-industry, and as result,

decrease in expenses of manufacturers of accessories on their manufacture.

Conclusion

In the conclusion it would be desirable to note, that the computer became originally mass

goods (as audio equipment). Sellers of such goods are interested in bulk sellings, instead of

profit on one sale. The technology allows making all of them more cheaply and more cheaply.

For fast sale any novelties are thought out. How to get rid of second-hand articles? Here

the price for accessories and computers also reduce and differently easier to store dearly.


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Laws of the market do a computer more cheaply (whether it is notebook or a desktop).

The computer today becomes the same household appliance, as a refrigerator, a washing

machine or a vacuum cleaner. The complex computing equipment has started to be on sale in

networks of household appliances as the box product has come, has bought, has connected.

Category of users corresponding, they use a computer for Internet connection and an exchange

of mail, for processing photos and record of disks, simple games. For this purpose the super

heaped up device is not accordingly necessary and there is it more cheaply. For the sake of

justice it is necessary to note, that good machines with a correct stuffing in the price did not fall

and cost dearly enough. It is not necessary to forget about perfection of technologies on

manufacture of completing, which, as is known, define the price of any computer and carry of

manufacture of the large companies to the countries with an inexpensive labor. Analogy simple

if earlier phone Motorola cost nearby $1,5 2 thousand and afford such toy could onlyselected, that now the device with a similar set of functions is not necessary also hundred.

References

1. Baumol W. The Free-Market Innovation Machine. Princeton University Press, 2002.

2. Berndt E. The Practice of Econometrics. Classic and Contemporary. Addison-Wesley

Publishing Company, Reading, 1996.

3. Berndt E.R., Griliches Z., Rappaport N. Econometric Estimates of Prices Indexes for Personal

Computers in the 1990s. NBER Working Paper #4549, November 1993.

4. Gruber H. Learning by Doing and Spillovers: Further Evidence for the Semiconductor

Industry// Review of Industrial Organization, 1998, v.13, pp. 607-711.

5. Mazzucato M. The PC Industry: New Economy or Early Life-Cycle?// Review of Economic

Dynamics, 2002, v.5,No, pp. 318-345.

6. Stavins J. Model Entry and Exit in a Differentiated-Product Industry: the Personal Computer

Market//The Review of Economics and Statistics, 1995, v.LXXXVII, No 4, pp. 571-584.


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7. Web News. http://www.yeehee.com/web-news/ (accessed on April 20, 2010)
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strategy of pricing of personal computers in the free market

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