Question

When is price skimming more appropriate, and when is penetration pricing the best strategy? When would trial pricing be an effective pricing strategy? Use some specific examples of possible new products. Identify the strategy they may have used. Explain wWhy they would use the strategy, and if the strategy was effective or not.

Answer 1

These are the types of pricing strategy through which a company can decide to earn their profit and recover the resources incurred. Skimming pricing strategy means when a manufacturer or seller pays a high launch price for a drug and then reduces the price for a limited period of time. This strategy is appropriate is because high price at the launch can make the consumers believe that the product has good quality and by charging high prices the company can also make profit and recover development cost. Later by skimming the price the product can last long and expand the place in market, this also help in developing loyal consumers.

Penetration pricing means a promotional technique used to win market share rapidly by setting an initially low price to entice consumers to purchase. This strategy is beneficial to the new entrants in the market because it helps the company to get its product and services accepted or adopted by consumers easily and quickly. Through this method the company is able to attain as many consumers as possible.

Trial pricing strategy is the practice of offering goods for a short time at a discounted price, typically as part of a promotional bid. Although, as the name suggests, the industry-standard free trial is optional, the consumer is also paying a greater than average fee for the trial period. It is effective because it removes the obstacles to actually purchasing the company, with the expectation that after the consumer has realized how valuable the company is, they will be more than willing to pay the premium cost once the trial ends.

In order to understand better the pricing strategies and their implementation, let’s see some of the leading company’s pricing strategy:-

1) Uber: Uber is the most acceptable service by the society at large. Every person must have this question in mind as to why the prices of Uber are being fluctuated; the reason is because Uber uses dynamic pricing. Dynamic pricing is nothing but the demand based pricing or we call can it as time based pricing or put it more clearly, that is a technique where food values change constantly, based on the size of demand that may be in a matter of minutes, hours or days. Uber is using dynamic pricing because consumer suspect traffic and climate change because of which it is difficult for the drivers to come on the meeting point so they refuse to ride so for the same when the company increases the pricing for the increasing demand of the ride, the driver agree to go for it. This method is effective in every case because the riders in most of the cases agree to ride with price hike.

2) Apple: Apple pricing strategy is skimming pricing strategy which means pricing the product high at the start to gain profit then reduces the price at the launch of their new product. Apple used this pricing strategy because apple has a multi-stakeholder plan that involves selling a limited range of products, concentrating on high-end, prioritizing profit over market share, generating such a product impact it lets consumers hunger for new ones. Apple is seeking to sell an award-winning product to demand a high dollar. This strategy is effective till date as we can see the success apple has achieved.