The marketing concept that will be discussed in this essay is about the pricing strategies for new products discussed by Kotler and Armstrong (Kotler and Armstrong). There are several pricing strategies which companies may adapt when introducing a new product.
They can choose to use the skimming pricing and penetration pricing (Kotler and Armstrong). Skimming pricing is when a high price is charged at the introduction of the product and then it will be reduced over time. This approach is ideal for markets which are small. Penetration pricing on the other hand, is when a low price is adapted to achieve greater market penetration. This form of pricing is used when the market is very large and there are a lot of competitors having similar or better products.
From one’s experience and observation of new products being launched, the skimming strategy is appropriate for products introducing new technology. This can be illustrated with the pricing adapted by Apple when it first introduced the iPad. Since the technology is basically new, they priced it between the range of $500 to $830 depending on the specifications and features. Apple was able to use skimming pricing because of the relatively new technology they were introducing. The pricing scheme was very effective because 80 days after it was launched in April 2010, Apple sold a total of three million iPads (Wikipedia , par 3). As a consumer, one will still be willing to buy the product although the price is quite high because it boasts of the latest technology in tablet computers. Furthermore, a high price often connotes a superior product image. However, one feels that if the skimming pricing was used with a new energy drink, then it will not get as much market share. This is because the market is very big and there are a lot of players in the industry. Introducing a new energy drink with a high price will probably not result in a high market share because the product offers very little difference as compared to its competitors. Since energy drinks are so known to the market already unlike the iPad, new energy drinks cannot command a higher price than its competitors.
Based on experience the penetration pricing is effective if the product is highly elastic; thus, consumers’ demand for the product is greatly affected by its price. Although this strategy can result in increased sales, the problem is that the competitors might respond to the low price by also lowering their prices; thus, there will no longer be any advantage to buy the new product.
Another possible problem with the penetration strategy is that a low price often connotes low quality. Based on one’s own experience, if a new product is priced lower than the existing products in the market, one has to think twice before trying the new product. The reason for this is that one thinks that it has a lower quality than the other products offered in the market that is why they can offer it at a lower price.
In the introductory stage of a product, it is essential that the company study very well the initial pricing strategy that they will implement. The pricing objectives of the company must be established because the price that they will choose must achieve their objectives. A thorough study of the market that the company wishes to target must be undertaken. Whether the skimming pricing or the penetration pricing is adapted, the main concern is if it will bring in the sales that the company wants to achieve at its introductory stage.
“Chapter 11 – Pricing Strategies.” Kotler, Philip and Gary Armstrong. Principles of Marketing 14/Ed. Prentice Hall Publishing, 2011.
Wikipedia. “iPad.” n.d. wikipedia Web site. 5 December 2011 <http://en.wikipedia.org/wiki/IPad>.