Pricing and positioning need to align. I.e., you need to price your product correctly for its position in the market. You also need to take into consideration the positioning and pricing of your competitors.

Note: in this case, positioning stands for the selection of product characteristics. For example, assume that technological constraints impose a strict trade-off between the motor's speed and its precision. Industry standards characterize the trade-off by a number between 0 and 100, with 0 being the highest speed and lowest precision and 100 being at the opposite end of the spectrum. A motor's speed-precision characteristic is thus completely specified by its 'position' on a line from 0 to 100.

Consider a setting where only two firms provide the goods or services for the entire market.

Scenario 1. Your and your competitor's prices are fixed and equal. The market is transparent. Your competitor can immediately observe your behavior and adjust the price accordingly. Both of you always try to maximize your profits. Your competitor has selected the characteristics of the product. In this case, the competitor set a speed/precision trade-off of a motor at 90 (i.e., lower speed and high precision). The only choice available for you is to select your own product characteristics.

a. What will you do in this case? Will you increase or decrease the characteristics of your motor? Explain. b. If you were the first mover in this market (with fixed prices), how would you position your motor? I.e., you are able first to select the speed/precision characteristics of your motor, would you change them?

Scenario 2. Your competitor has selected the product characteristics and is now waiting for your position and price choices to choose the price for its own product. You now have to choose both your position and its price.

a. How would you position yourself? I.e., would you select the same product characteristics as in the first scenario? What explains the difference if any? b. If you were the first mover in this market (with prices determined after positions are chosen) where would you position yourself?