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The proposed product is a new virtual wardrobe application that will help the users to keep digital copies of bought clothes by scanning barcodes. The application will also be able to create, edit, and share outfits on social networks. The unique feature of the application is that it will include a feature that will help to create custom pieces of clothes using templates and add them to the virtual wardrobe. This feature is crucial for custom-made clothes and pieces of clothes that cannot be added through scanning. Moreover, people will be able to buy clothes from partner stores, such as H&M, Zara, Bershka, and Pull&Bear, if the customer decides that she or he needs a new outfit. The application is meant to be designed for Android and iOS, which means that it will be distributed through Google Play and App Store.
The application will be sold with a lifetime license, which implies that the customers will be able to use all the functions after paying for the application. The estimated price for the application was $4.99, which was set using the competitive pricing strategy and value-based approach. According to BDC (n.d.), there are five strategies for selecting a price for a product, including cost-plus, competitive, value-based, price-slimming, and penetration pricing. Only two of these strategies were appropriate for the new product.
The pricing approach appears to be adequate for three central reasons. First, the mobile application will have no direct variable costs except for the fees of the distributors (App Store and Google Play), which implies that there will be no need to worry about the variable costs being above the sales. Additionally, the cost-plus approach is difficult to utilize in this situation, as there are no COGS. Second, the penetration pricing is not suitable for the situation, as the competition is rather low, and there will be no need to use aggressive penetration strategies. Third, using skimming prices would also be inadequate, as the demand for such applications is low and there are cheap alternatives. Both competitive and value-based pricing approaches are adequate for the situation; therefore, it was decided to combine them. The price was determined by finding an application that is similar to the one proposed and adding extra cost for the new feature of creating custom pieces of clothing. BDC (n.d.) claims that a value-based approach to pricing is most beneficial in the majority of situations. However, it was difficult to quantify the benefits of all the features of the app; therefore, only the additional feature was quantified, and this extra price was added to the price of a similar application.
The application has significant growth potential during the first 12 months of sales. The estimations concerning revenues, costs, and income are provided in Table 1 below. These estimations were made using the information from BizStats (n.d.). The forecast demonstrates that the application will be able to earn $69,311 in net income after the first year of sales.
Table 1. The growth potential of the new application
References
BDC. (n.d.). How to price your product: 5 common strategies. Web.
BizStats. (n.d.). Corporation benchmarks. Web.
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