Pricing Strategy 2 (Pricing for new product)

N's spirit Basic MBA > Pricing Strategy 2 (Pricing for new product)

Pricing Strategy 2 (Pricing for new product)

Relationship among differentiation of a product and price is as follows. When a new product is launched, three of five, value price, premium price and penetration price should be chosen.

Price Strategy for new product

For an entirely new product for the market, premium or penetration price are often chosen in these methods.

Penetration Pricing

Penetration Pricing is a method used when more production quantities can bring less unit cost.

In this method, at first, price is often set at same price as the cost or less price than the cost. By doing it, sales quantities of a product significantly increase, and then, the cost significantly decreases by scale economics or experience effect.

Advantages of this method are to get larger market share in earlier stage and to have many customers recognize a product. However, disadvantages are to have a risk of investment in facilities or working capital.

Penetration Pricing can be applied in case that;

There is large market potential
There is high price elasticity
Scale economics and experience effect can work
Competitors cannot follow lower price.

Skimming Pricing

Skimming Pricing is a method to collect money from the market in earlier stage based on high price. This is a kind of premium price in above chart.

Advantages of this method are to grab customers pay a lot of money, to generate the market having low price elasticity and to collect money immediately. However, disadvantages are to allow competitors to enter the market easily and to make only a little money from the product.

Skimming Pricing can be applied in case that;

There is differentiation of a product
There is low price elasticity

Consideration of dealer margin

If a product is sold to consumers through dealers, it is important to consider how much dealer's margin is needed because, needless to say, dealers usually like high margin. When dealers know that a product generate higher margin, they eager to sell it to consumers.


<< >>
Marketing Process
Marketing Mix (4P)
Product Strategy
Pricing Strategy 1
Pricing Strategy 2
Pricing Strategy 3
Pricing Strategy 4
Price Strategy for Service
Innovation of Pricing Model
Channel Strategy
Promotion Strategy
Prevention of Competitor's Imitation
Brand Strategy
B2B Marketing 1
B2B Marketing 2
Estimation of Market Size
Estimation of Market Size (ATAR model)
Estimation of Market Size (Logistic curve)
Estimation of Market Size(BASS model)
Stage Gate System


N's spirit Basic MBA > Pricing Strategy 2 (Pricing for new product)

Copyright (c) N's spirit. since 2004 All rights reserved.