penetration pricing examples cell phone companies

Factors like the product’s quality, brand image, and customers’ perception matter in some categories. Price skimming strategy may be suitable for some products, but it doesn’t work with all the categories of products. That’s how smartphone companies skim profit layer by layer at different stages of the product’s lifecycle. In the 3rd stage after some time, the company drops the prices to target the price-conscious customers. A few months later, the company drops the prices in the 2nd stage to attract more people. That’s why the prices of the latest model of smartphones are higher in the beginning, and only those people buy it who is interested in the latest model. Therefore, such companies follow the price skimming strategy because they have to cover the high expenses in the beginning. When companies like Apple or Samsung plan to invent some new products or the latest model of iPhone or Android, then they have to spend a lot of capital, manpower, and resources in the research and development. The sale of the new product may be lower in the beginning, but the company earns maximum profit because of the price skimming strategy. They lower the prices at the later stages of the product’s lifecycle. It also goes by the name of the market skimming pricing strategy.Ĭompanies follow the price skimming strategy is to earn a maximum profit for the new product. The purpose is to skim maximum profit from the market layer by layer because the market is willing to pay high prices. It means that charging high prices for the new product. Price skimming strategy is when a company launches a new product in the market, and then it follows price skimming. Let discuss them in detail Price Skimming Strategy Therefore, when companies launch the new product in the market, they face a challenge that what type of pricing strategy they should follow, price skimming, or price penetration. The introductory stage is when the product is new in the market. Therefore, the pricing strategy of the product changes at different stages of the product’s life cycle with varying demand. Pricing Strategy for New ProductsĪs we know that a product passes through the different stages in its life cycle and its demand changes at every stage. For instance, the high prices of the latest model of the mobile phone won’t affect the product’s demand in the market, because people are focused on the product and they care less about the price.

It usually happens with technical products. If people aren’t sensitive about the pricing of the product, it means that the high prices won’t affect the product demand in the market.

It means that the demand for the product would be lower if the price is higher. You should know that whether people are sensitive to the price of your product. It’s important to know the demand for your company’s product in the market before setting the price. It doesn’t matter whatever the case is, companies should also keep in mind the demand and market competition factor before pricing the new product.Īlso Read: 10 Types of Pricing Strategies for Your Small Business Market demand vs. Other businesses may follow the return on investment strategy it means that you decide how much return you want on your investment. Some companies may follow the cost-plus pricing strategy, it means adding up all the fixed and variable costs and then add a percentage of profit on it. Therefore, businesses and companies may test various pricing strategies before setting the final price of a new product. But it’s a very important and challenging part of any business especially when the product is new in the market because you don’t know how the market would react to the product price.

Example of Penetration Pricing Strategy.

Penetration pricing examples cell phone companies