Beginning the 21st century, the FPD (Flat Panel Display) market has been growing massively. It is difficult for the market to establish pricing strategies according to the development of technology and the change of market due to technological variances and diverse sizes of products such as the LCD, PDP, Braun tube, and projection television (TV) in the FPD market.
The preexisting methods for pricing, used to forecast the future price of products, take into consideration the prime cost, value of brand, and functions of products applied by the same technology. In the market, however, the rapidly changing technology becomes an obstacle to the establishment of pricing strategies considering market competition.
In order to overcome the preceding limitations, we propose a new method for forecasting the appropriate gap between the prices of products based on different technology and size. The purpose of this PBS (Pricing Based on Simulation) method is to contribute to setting up an effective pricing strategy in the FPD market. This method consists of surveys, estimated price response function, analysis of the appropriate gap between product prices, prediction of future market competition, and establishment of strategies.
By implying the PBS method to the global FPD market in year 2005, we deduced the price response function and the appropriate gap between product prices for the future. According to the real FPD market from 2005 to 2006, the statistical marketing data shows significant similarity in movement to the forecasting result by the method. Therefore, the PBS method can be utilized effectively when products using newly developed technology is introduced to the market in the future.
As technology rapidly develops, consumers encounter a problem where they need to decide whether they are willing to exchange the benefit of obtaining the best technology available with the cost of acquiring that technology. Therefore, when producers make the sequential versions of products, they should consider the “buy or wait” decision problem of consumers (Kornish, 2001). Consumers and producers find it difficult to decide the value of the product since the change of technology is not simply a partial improvement or an addition of new functions for the product, but an innovative change of technology. Producers are facing the problem of determining the proper amount of investment for innovative technology. Also, consumers need to decide on the proper acquiring cost for the product applied by this new technology considering its value. Especially in the market where there are diverse products using new technologies, we need to evaluate not only the value of new technology individually, but also the value of new technology in relation to others. As the markets become increasingly competitive, globalized with quick technological change and decreased average life of products, the incorrect pricing of new products may considerably reduce the profitability (Rochford & Wotruba, 2000).
This paper plans to apply the new method, which forecasts the value of new technology and the upcoming market, into the big screen FPD market that challenges the products using various new technologies. There are innovative new technologies such as the PDP, LCD, and projection TV in the big screen FPD market. Producers need to make decisions on vastly investing in the innovation of the screen size and quality, while the consumers make complex decisions on purchasing a TV based on the difference of new technologies, screen size, and quality. For example, it is difficult to purchase a TV based on only screen size because a projection TV with larger screen size than others may be bought for the same price, but has poor quality and unnecessarily large volume. Although PDP and LCD TVs cannot be distinguished by regular consumers due to similar outlooks, they differ in detail specifications such as brightness, contrast, and electrical usage since completely different technologies are used.
Preexisting researches about price forecasting and pricing policy have focused on the establishment of pricing strategy for the market as well as proper pricing of new and existing products (Dean, 1969 and Faulhaber and Boyd, 1989; Green & srinivasan, 1990; Ingenbleek et al., 2003 and Rochford and Wotruba, 2000). For this reason, these researches have worked well in the market where only a single product develops in function. However, it is difficult to apply the existing researches to the market in which investment for developing technology is vast and there are diverse innovative technologies such as the FPD market. In the future, the markets that are exposed will have diverse new technologies that exist and develop simultaneously. The purpose of this paper is to establish a strategy of pricing by forecasting the market competition of products using innovative technologies in the market, which has diverse new technology and alternative products. We especially evaluate the validity of this method by comparing the forecasting results of the FPD market in 2005 to the real movement of the FPD market from 2005 to 2006. Therefore, the point is that this evaluated method can be applied to other innovative technology markets in the future.
The first chapter of this paper explains the background and purpose of the research, the second chapter reviews the existing studies on forecasting price and the establishment of pricing strategy, the third chapter proposes the method for an analysis of price sensitivity and forecasting the market competition, the fourth chapter evaluates the appropriateness of the method by applying this proposed method to the FPD market, and finally the fifth chapter discusses and concludes the complementary issues for the future.
For the products using the new innovative technology, the producers cannot figure out how much money should be spent for the investment, while the consumers cannot make decisions on purchasing the new products since they do not have enough information about these products. Especially if the diverse products adapting new technologies are competing on the market, then it is difficult to decide the proper prices and to forecast the changes of market in the future. In order to overcome these difficulties, in this paper, we propose the methodology to estimate the value of the new technology and to forecast the future market.
The summary of this methodology is the following. First, we derive the price response function from the data achieved by the survey for the value of the new technology. Second, we estimate the value-based on the recognition point and the premium through the price response function. Finally, we forecast the proper price of the product and the market share in the future. We apply this methodology to the FPD market where the new technologies such as the LCD and PDP are competing. Table 9 is the result of the comparison between the estimated market shares shown in Fig. 9 to the real market shares of the 40′′–44′′ LCD and PDP TVs from the first quarter to the third quarter in 2006. The difference between the estimated data and the real data is only 4%, which shows the precise accuracy considering the variance of the market by time.
