What is the name of a pricing strategy where a business sets a high price for a new product in the market?
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Selling Your Product or Service at the Ideal Price
© GettyImages Make sure that the price is right for your product and your market. You've labored long and hard to develop and make your product. You did the research. You raised the funds. You worked tirelessly to build a strong, creative team, and now – finally – it's ready to be launched. Just one question: how much do you think it's worth? Setting a price for a product or service might sound like a relatively small piece of the much larger picture. But, in reality, it's one of the most important factors that you will need to consider when bringing your product to market. Pricing is a key part of the marketing mix, and it's crucial that you get it right. You might already have a figure in mind, or you might just want to go for what "feels right." But, before you make your decision, remember that pricing can be a complex, subtle task. If you set your price intelligently, you'll more likely generate good sales and high profits. Set it too high or too low, and you risk losing both customers and revenue. This article explores some key strategies for getting the price of your product just right. What Are Pricing Strategies?Pricing strategies are the approaches that organizations use to price their products and services correctly, and in line with current market demand. They help you to discover the optimum price for your product, depending on how you want to position it. You'll have to consider a number of factors when you're setting your price: your target consumer, your financial and strategic product or brand marketing objectives, and your core business objectives, for example. You should also take other factors into account when deciding on your price strategy. For example, competitor activity, market position and dynamics, direct costs (that is, costs that go directly into producing your goods or service) and indirect costs (such as general operating expenses, insurance, and depreciation). The Pricing Strategy MatrixThe Pricing Strategy Matrix shows how different levels of price and quality combine to form four commonly used pricing strategies: Figure 1: The Pricing Strategy MatrixThe Pricing Strategy Matrix discussed in this article is derived from a paper by Joel Dean titled "Pricing Policies for New Products." Let's look at the quadrants of this matrix in detail. 1. Economy PricingEconomy pricing only works sustainably when you have lower overheads and costs than your competitors. Your low cost base allows you to sell at a discount price so that you can gain a high market share. For example, "value" supermarket chains such as Lidl® have gained a competitive edge over their mid-market and premium rivals by setting low prices. (Here, "quality" might not mean low product quality. Instead, the product range might be limited, or the packaging or environment that the product is sold in could be basic.) Advantages:
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Get the Free NewsletterLearn essential career skills every week, plus get a bonus Essential Strategy Checklist, free! Read our Privacy Policy 2. Penetration PricingPenetration pricing focuses on setting an artificially low initial price, or a "special introductory offer," on a high-quality product. This strategy relies on the expectation that customers will naturally switch to your lower-cost, higher-quality product, helping you to penetrate the market very quickly. Once you have successfully launched your product or service, you can begin to increase your price or move to a skimming or premium pricing strategy. Penetration pricing is great if you are launching a product in a market where demand tends to fluctuate significantly as prices change. This "price elasticity" allows you to use your lower launch price as a competitive weapon against your more established rivals. Satellite broadcasters, for example, often use it to grow their subscriber base, before getting existing customers to sign up for more expensive sports and movie packages. Advantages:
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3. Price SkimmingPrice skimming involves setting a high price on a low-quality product, with the aim of generating as much revenue as possible from the small number of people who are prepared to buy it at that price, before lowering the price once this market becomes saturated. Once this happens, you will be able to "skim" profits from wider, more price-sensitive segments of the market. Price skimming is often used in markets that have a high level of new product launches, and where novelty is important. A good example of this is the book market. A new book is first published in hardback for a high price and, if it sells well, it is later republished as a cheaper paperback. Advantages:
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4. Premium PricingWhen your production costs are high and you have a unique or "prestige" product that you believe will appeal to image-conscious and aspirational buyers, a premium pricing strategy might be the best option. (Think Louis Vuitton®, Cunard®, and Rolex®.) Advantages:
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Monitoring Your PricesNothing stays the same forever. The marketplace is fluid and ever-changing, and production costs are liable to fluctuate. This means that, once you've settled on a price, it's important to monitor it to ensure that your product or service remains competitive, and that your profit margins stay healthy. Ask your customers for feedback on price, and keep an eye on your rivals' pricing strategies – particularly new entrants to the market that are using penetration pricing strategies. Key PointsA pricing strategy is a method for determining the optimum price of a product or service. The Pricing Strategy Matrix describes four of the most common strategies by mapping price against quality. The matrix quadrants show:
Think about the type of product that you are launching and the market that you are targeting. And consider factors such as your costs, the competition, and the objectives of your company, brand or product. It's also important to review your pricing strategy, particularly if market conditions change. What is high pricing strategy called?Also known as prestige pricing and luxury pricing, a premium pricing strategy is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost.
What strategies are used for new product pricing?The 5 most common pricing strategies. Cost-plus pricing. Calculate your costs and add a mark-up.. Competitive pricing. Set a price based on what the competition charges.. Price skimming. Set a high price and lower it as the market evolves.. Penetration pricing. ... . Value-based pricing.. What are the 4 types of pricing?What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
What 3 strategies are used for pricing products?In this short guide we approach the three major and most common pricing strategies: Cost-Based Pricing. Value-Based Pricing. Competition-Based Pricing.
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