Which Pricing Strategy should be adopted while introducing Innovative Products or services in the market?
During the Introduction phase, Innovative Products are targeted at the Innovators and Early adopters category of Customers. Both Innovators and Early Adopters are price-insensitive personas and are willing to pay a premium to get early access to innovative products. These are the people who will stand in queues and will buy the iPhones as soon as it is launched.
Also, in the introduction phase of any new product in the market, there is nil to minimum competition. Hence, customers have a minimum choice. So, if the prices are high, it works.
Hence, the Price skimming strategy is used in the introduction phase of launching innovative products or services.
Price skimming is a pricing strategy that involves setting a high price for a new product or service when it is first introduced into the market. This pricing strategy is often used for products or services that are innovative, technologically advanced, or have a unique selling proposition that sets them apart from the competition.
The primary objective of price skimming is to generate maximum revenue in the short-term by targeting early adopters, innovators, and other customers who are willing to pay a premium price for the new product or service. Over time, as competition increases and the product or service becomes more widely available, the price is gradually lowered to attract price-sensitive customers.
The prices are kept high initially to maximize the revenue because of the limited availability. Initially, the demand is high, but supply is low. Gradually, as competitors enter the market and the product becomes widely available, the skimming strategy is not sustainable.
As the product moves further in the lifecycle and crosses the chasm, the prices have to be reduced when the product enters the mainstream market in the product lifecycle. In this phase, the target is to attract the Early majority category of customers and these customers are price sensitive because competition is there, it is wise to adopt a Price penetration strategy in this phase and reduce the prices further to attract the masses.
Two lessons:
- Price skimming strategy is used in the Introductory phase of Innovative products as the target is Innovators and Early Adopters.
- The Price Penetration strategy is used as the product gets into the mainstream market because the target is the Early Majority category of customers, who are price sensitive.
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