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NEW PRODUCT PRICING

INTRODUCTION
Pricing strategies tend to change as a product goes through its product life cycle. One stage is particularly
challenging: the introductory stage. This is called New Product Pricing. When companies bring out a new
product, they face the challenge of setting prices for the very first time. Two new product pricing strategies are
available: Price-Skimming and Market-Penetration Pricing. Pricing is an important parameter; organizations
need to take care of while launching a new product or service in the market. Before deciding the price of a new
product, it is essential for organizations to understand and also calculate total costs involved in the entire
process of the product development be it designing, manufacturing or delivering the same. No organization
works for charity and thus the price of a new product or service ought to be decided keeping in mind all such
factors. Penetration and skimming are two strategies which play a crucial role in deciding the price of a new
product. When a new product is launched in the market, first and foremost it needs to meet and exceed the
expectations of customers and then compete with other brands available in the market. Competition does not
really matter in the initial stages of product launch. What is more important at this stage is the survival of the
product. Remember, price of a new product does affect the buying behaviour of end-users. As an end-user if
you come across a new product which is comparatively cheaper than the one you are already using, definitely
you would not think twice before purchasing the same. The same happens in cases of new services as well.
Various pricing strategies in new product
Penetration and skimming pricing strategy;

1) Penetration pricing:- Penetration refers to keeping the price of a new product


relatively low such that it covers just the manufacturing costs while earning minimum
profits for the organization. Keeping the price of a new product relatively low in the
initial stages helps it penetrate the market easily and also get accepted among target
audience. Keeping the price, a little low not only reduces the competition from other brands
but also increases the sales and makes the product popular in the market. No one would
even bother to look at your product if it is priced too high at the introductory stage, unless
and until it has some exclusive features.
What Purpose, The Firm Pricing the

product with low price?

Penetration Market and Market Share

to Increase subsequent period

(the method can be doing if the firm concerns to entry new firm)
2) Skimming pricing:- Organizations which depend on skimming strategy for pricing a new
product often keep it at high prices and target only those who are actually interested in buying

the new product. As against penetration strategy where the focus is to ensure the product is

accepted by a wide range of audience, pricing as per skimming strategy ensures respective

organizations earn huge profits. Organizations, in this case keeps a relatively high price for their

products as they believe there is no harm in charging more from the end-users in exchange of a

premium product. A BMW or a Mercedes is never introduced at low prices as people do not

mind paying for the comforts and luxuries, such brands offer. Can the price of a Maruti Suzuki

car ever match with a BMW? Never. One dollar shops are very popular in US where products

are priced at just one dollar. Such shops manage to earn huge margins as customers prefer

buying more from these shops rather than burning a hole in their pockets.
Organizations dealing in premium products often depend on skimming
technique to price their product. Trust me, keeping the price high, sometimes,
ensures the product is not only exclusive but also offers additional features and
benefits. Have you ever come across a low priced Hide sign Bag? Very rare.
That’s the speciality and uniqueness of the brand. A five-star category hotel, if,
introduces new deals and schemes for their regular customers, can never price it
the way budget hotels do. Pricing also decides the premiumness of a certain brand.

A new product is also priced keeping in mind the paying capacity of target
audience, prices offered by competitors and brand value.
Why New Product with Pricing Higher?
Because:
1. The Innovating Firm
- Acts as a Monopolist
2. The Initial Output Capacity Rather
Small with Market Demand
- Risk of New Product Failure

- Demand Not Optimal


What Price Skimming Only Short Run?

In The Long Run Price Skimming Can Be Do:

1. If The Innovator to Barrier to Entry

2. If Consumer Thinking

Relation between Price and

Quality Product

3. If Demand for the product can be long time.

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