New Product Pricing Strategies

Pricing strategies usually change as the product passes through its life cycle. The introductory stage is especially challenging. We can distinguish between pricing a product that imitates existing products and pricing an innovative product that is patent protected.

A company that plans to develop an imitative new product faces a product-positioning problem. It must decide where to position the product versus competing products in terms of quality and price. Figure 17.1 shows four possible positioning strategies. First, the company might decide to use a premium pricing strategy - producing a high-quality product and charging the highest price. At the other extreme, it might decide on an economy pricing strategy - producing a stmpline

A slogan, often used in conjunction with a brand's name, advertising and other promotions.

Figure 17.1

Four price-positioning strategies lower-quality product, but charging a low price. These strategies can coexist in the same market as long as the market consists of at least two groups of buyers, those who seek quality and those who seek price. Thus, Tag-Heuer offers very high-quality sports watches at high prices, whereas Casio offers digital watches at almost throwaway prices.-'

The good-value strategy represents a way to attack the premium pricer. The United Kingdom's leading grocery chain always uses the strapliiie: 'Good food costs less at Sainsburv's'. If this is really true and quality-sensitive buyers believe the good-value pricer, they will sensibly shop at Sainsbury's and save money -unless the premium product offers more status or snob appeal. Using an overcharging strategy, the company overprices the product in relation to its quality. In the long run, however, customers are likely to feel 'taken'. They will stop buying the product and will complain to others about it. Thus this strategy should be avoided.4

Companies bringing out an innovative, patent-protected product face the challenge of setting prices for the first time. They can choose between two strategies: market-shimming pricing and market-penetration pricing.

Ma rket-skinimiiig pricing

Setting a high price for a new product to skim mnximiim revenues layer by layerfrom the segments willing to pay the high price; the company makes fewer but more profitable sales.

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