Skimming or Penetration Pricing?

All new hit innovations need a winning price. But having never priced the product before, how do companies know what to put on the price tag? In part 8 of our Pricing Basics series, Jan Haemer discusses conditions and success factors in deciding between two pricing strategies for new products: Skimming and penetration pricing.

Determining the right pricing strategy is an especially challenging aspect of launching a new product or service. You have to set prices for the first time, and this price reveals a lot about your product. Many companies fall into the trap of leaving the price decision to last minute, with almost no time for analysis or research.

A high price creates a sense of premium or exclusivity around the product, whereas a low price might aim at luring customers from potential competitors. Defining the…