Bill and Farrah Have Been Recently Hired by Superior Stereo

Essay

Bill and Farrah have been recently hired by Superior Stereo Systems, a cutting-edge manufacturer of stereo speakers. They have been assigned to work on a product team for the Superior V, an existing product, and the Superior VI, a brand new speaker technology. The team is reviewing the pricing strategy used to this point. Bill insists that they should price the speakers to maximize profits. He explains, "It is basic economics: companies price their products to maximize profits. There's no question, this is the strategy that we should use." Farrah, remembering what she learned in her marketing courses, isn't so sure that Bill is right. The technical specifications of the Superior VI speakers have been worked out, but the team is struggling with pricing. Some members of the group think that the new speakers should be priced higher than the Superior V, while others are arguing for a lower price. In the past, the price for the Superior V has been slightly higher than similar products offered by competitors. Why would a company use this strategy?