Pricing Case: Terry’s Miracle Paint

Terry Chase is a car painter. He has been painting cars for 10 years. Last year, he made an amazing discovery. He mixed a clear paint that once heated would take on the color of the paint around it on the car. He has been experimenting with paints that change color for the last two years and this new paint he has developed will be a major innovation to the paint market for cars. As car paint weathers, it fades and car painters always have a problem matching the paints to older faded cars that are wrecked or scratched.

Terry feels that his new paint will be most beneficial to people who want to touch up scratches to their cars and auto dealership that want to make quick repairs. The question that Terry needs to answer is how much to charge for his new touch up paint. He has decided to sell in a 4 fluid ounce tube with a brush included. It costs Terry $3.00 per tube for the first 1000. Terry knows that conventional touch up paint costs about $4.00/tube. However, his paint has much better qualities; consumers do not need to worry about matching color and his paint flows and seals better. However, when Terry asks the manager at AutoZone about his paint the manager said the consumers are very careful about what they put on their cars and many are reluctant to try new brands. The manager at Autozone said that his customers are quite price sensitive.

Terry becomes confused about where he should sell the paint and what price he should charge. AutoZone seems reluctant to sell his paint and other retailers have not been very supportive. Terry talks to a specialist auto paint shop and they are willing to sell Terry’s paint but want a warranty guarantee for the paint. Terry decided to talk to an Auto dealership and they will not use any paint the General Motors does not support through its dealer network. A distribution agent has told Terry that he will sell is paint but he must sign a contract that gives the distributor exclusive rights and gives the agent great latitude on how much he can charge for his paint.

Terry has decided to talk to Dr. Armstrong about his problem given that he had Dr. Armstrong for marketing several years ago.

Pricing Questions:

1. Relative to the Porter Strategies which generic strategy would be best and why?

2. Given your selected Porter strategy which new product pricing strategy would be best? Explain.