New Product Pricing Strategies
When a new product is launched, companies can choose one of the following pricing strategies:
- Market Skimming Pricing
- Market Penetration Pricing
Market Skimming Pricing
- Setting a high price for a new product to maximize revenue from different customer segments over time.
- Example: Apple products
When does Market Skimming work?
- Product quality and brand image justify the high price.
- Enough customers are willing to pay the higher price.
- Product is unique, and competitors cannot easily offer a similar product at a lower price.
- The brand is strong enough that price-conscious buyers wait for discounts rather than switch to competitors.
- Costs of making a smaller quantity should not be too high.
Market Penetration Pricing
- Setting a low price for a new product to quickly attract buyers and gain market share.
- Helps gain a large number of customers quickly.
- Can turn first-time buyers into long-term loyal customers.
- Example: Gillette razors
When does Market Penetration work?
- The market is price-sensitive, meaning lower prices bring in more buyers.
- Production and distribution costs decrease as sales increase.
- Low prices discourage competitors from entering the market.
- The market share gained must lead to long-term profitability