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Cost compression curve pricing of technically advanced products (for example, a microprocessor) epitomizes penetration pricing.
This cost compression curve pricing strategy, which took two decades for the Model T's life span, is condensed into a few months for the integrated circuit.
But though the speed and the sources of saving are different, the principle is the same: a steep cost compression curve suggests penetration pricing of a new product.
Cost forecasting for pricing new products should be based on the cost compression curve, which relates real manufacturing cost per unit of value added to the cumulative quantity produced.
It is possible, second, because the rate at which competitors' cost will slide down the cost compression curve that results from cost-saving investments in manufacturing equipment, methods, and worker learning is usually a logarithmic function of cumulative output.
In contrast, a policy of penetration pricing from the outset, in anticipation of the cost compression curve for manufacturing costs, is usually best when this curve falls steeply and projectably, and is buttressed by economies of scale and of advancing technology, and when demand is price sensitive and invasion is threatened.
Similar(53)
The other variables bandwidth and storage costs, compression ratios, graphics processing are all working in the favor of Internet bypass.
Creating opportunities to split the market into segments that differ in price sensitivity and in competitiveness, so as to simultaneously charge higher prices in insensitive segments and price low to elastic sectors, can produce extra profits and faster cost-compression for a new product.
The largest capital cost is compression and pipeline systems, and the largest operational cost is compression.
The higher the pressure the greater the yield but the higher the actual cost of compression.
On the other hand, if the pressure declines, there is an economic limit at which the cost of compression exceeds the value of the recovered gas.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com