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Space Traveller

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15 views

Space Traveller

Uploaded by

jasontianzc2008
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question b

i. the price Stella would charge for *Space Traveller* is $18 per unit.

ii.One benefit of using contribution-cost pricing is that it ensures each unit sold contributes to
covering fixed costs and generating profit. This approach allows the company to achieve its
break-even point faster and potentially reach profitability sooner. By focusing on covering
variable costs first, Horizon Software gains the flexibility to adjust prices according to market
demand and competition, which can help in maximizing profits or increasing market share.

Question d
I would advise Stella to consider a skimming pricing strategy for the *Space Traveller* game,
given that it is a new and interactive product likely to attract early adopters who are willing to
pay a higher price. A skimming strategy allows Horizon Software to capitalize on the game’s
uniqueness and target customers who associate high prices with high quality. Since *Space
Traveller* is expected to have a short product life cycle, a high initial price would maximize
revenue from early adopters before the market becomes more saturated and competition
drives prices down.

Using a skimming strategy could also help the company recover its high initial fixed and
variable costs more quickly, reducing financial pressure. With many competitors entering the
market, Horizon Software may lose its competitive advantage quickly, so capturing revenue
early at a premium price makes sense. Horizon Software is aware that new competitors enter
the gaming market frequently, which means the window for premium pricing is limited. By
adopting a skimming price, the company can take advantage of the initial excitement
surrounding Space Traveller and generate as much revenue as possible before competition
intensifies. Once similar products enter the market, Horizon Software can gradually reduce
the price to attract more price-sensitive customers.
However, if Horizon Software’s primary goal is to gain a large market share right away, a lower
price might be more effective to attract a broader audience. By starting with a high price,
Horizon Software may set customer expectations for premium value. If the price drops
significantly after initial sales, some customers might feel that the initial price was inflated,
which could affect brand perception. Customers who buy early at a high price might feel
dissatisfied if they see the game’s price reduced soon after, which could impact their loyalty
and future purchasing decisions.

In conclusion, if the main goal is to maximize early profits and leverage the game’s novelty,
skimming pricing would be a good approach. However, if the company prioritizes rapid market
share growth, a lower pricing strategy might be more suitable.

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