New Product Pricing Strategy – What is price? Price is one component of the marketing mix in which the price contains several main components, namely production costs, distribution and, of course, profits.
Price can be defined as a statement of the value of a product. Customer value is the ratio or comparison between perceptions of benefits and costs incurred to obtain a product.
The price of a product is flexible, meaning that it can be adapted to situations and conditions, and the owner has the authority to determine the price, or determine how much profit will be obtained.
3 Types of New Product Pricing Strategies
There are three kinds of pricing strategies for new products, namely skimming pricing, penetration pricing, and status quo pricing. Here is an explanation of each:
1. Skimming Pricing
Skimming pricing is setting a high price when a new product is launched and the price will continue to decrease over time.
This strategy is usually used by large companies that already have a well-known brand and a good positioning in the community, which then releases the latest products with a skimming strategy. Examples of apple products, sports cars, adidas and so on.
Purpose of Pricing with Skimming Pricing Method:
- Targeting consumers who don’t really care about price (prioritizing quality, brand, etc.).
- Get more profit so that it can cover product costs (production, promotion etc.)
- To test the market, it is easier to lower the price than to raise the initial price.
2. Penetration Pricing
Penetration pricing is setting a low initial price with the aim of quickly penetrating the market and building brand loyalty from consumers.
This strategy is commonly used by new companies that are just entering the market. Example: newly opened shop, new restaurant etc.
This strategy has a long-term perspective, where short-term profits are sacrificed in order to achieve a sustainable competitive advantage. There are 4 types of price penetration pricing strategies, namely:
a. A restrained price is a price that is set with the aim of maintaining a certain price level during periods of inflation.
b. Elimination price, which is a price fixing at a certain level that can cause certain competitors (especially small ones) to leave the competition.
c. Promotion price is the price set low with the same quality, with the aim of promoting a particular product.
d. Keep-out price, is setting a certain price so as to prevent competitors from entering the market.
3. Status Quo Pricing
Status quo pricing is a fixed price strategy, or one that is in line with competition.
This means that the imposition of prices is identical to or very close to competitors’ prices. For small companies, prices that match the level of competition are the safest path for long-term product viability.
The Importance of New Product Pricing
As explained above, the price is the determination of the value of a product. Then why should the price be set? There are 4 objectives of pricing as follows:
- Profit-oriented, that every company always chooses the price that can generate the highest profit or often called “profit maximization”.
- Volume oriented, that pricing is in such a way as to achieve a certain level of sales volume, sales value or a certain market share.
- Image-oriented, that setting a certain price can shape the company’s image, for example setting a high price can form a prestigious company image, while setting a low price allows maintaining a certain company value (keeping the lowest price in an area).
- Price Stability Oriented, this is done to maintain a stable relationship between a company and the industry leader’s price.
