Part (b)(ii) Discuss any other relevant factors the management should consider when setting the desired selling price of the graphene chip.
Answer
Management should consider several factors when setting the price for the new graphene chip:
Market Position:
The chip is likely price-sensitive, so a small change in price could significantly impact sales volume.
They could use premium pricing to target customers willing to pay more for new technology.
Research & Competition:
Market research with cell phone manufacturers is essential to determine what they are willing to pay.
They must understand competitor products and pricing to stay competitive.
Operational Strategy:
They should analyze how the new chip's price will affect sales of their old silicon chips.
Lowering the price could be a strategy to block new competitors from entering the market.
Target costing, which sets the price first and then works to meet the production cost, is a good approach.
The timelines for setting up the new production plant must be factored into the pricing strategy.
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