New Product Pricing — Transcript

Full transcript

1. 0:03in this video we're going to discuss new
2. 0:05product pricing
3. 0:08so as you recall from a previous video
4. 0:11we have lots of different pricing
5. 0:12strategies that marketers can pursue in
6. 0:16this video what we want to do is take a
7. 0:17look at new product pricing so what are
8. 0:20the options if a marketer is releasing a
9. 0:22new product into the market
10. 0:27so when pricing new products companies
11. 0:29can choose one of two strategies the
12. 0:31first is market skimming pricing and the
13. 0:34second is market penetration penetration
14. 0:37pricing let's take a look first at
15. 0:39market skimming
16. 0:42so market skimming means that we're
17. 0:44setting a high price for a new product
18. 0:46to skim revenue from segments willing to
19. 0:49pay the high price
20. 0:52and because we've set a high price
21. 0:54there's going to be fewer sales fewer
22. 0:55people are going to
23. 0:57buy our product or service however each
24. 0:59one of those sales
25. 1:01is going to be more profitable
26. 1:04one of the reasons we call this market
27. 1:06skimming is if you can picture
28. 1:08using a skimmer on a pool you're
29. 1:10basically skimming the top layer and
30. 1:13often what we see in market skimming is
31. 1:15a marketer will set a a high price for a
32. 1:18new product or service
33. 1:19those customers who are willing to pay
34. 1:21that will pay and then after a period of
35. 1:24time maybe three or six months the
36. 1:25marketers will slowly lower that price
37. 1:28and again skim from those customers who
38. 1:30are willing to pay
39. 1:32the higher price so sometimes with
40. 1:34skimming we come down slowly and skim
41. 1:38each layer that's where we get the name
42. 1:40market skimming
43. 1:42so market skimming is particularly
44. 1:44useful
45. 1:45when we have a product or service whose
46. 1:47quality and image support a high price
47. 1:50so we wouldn't see market skimming for
48. 1:53uh everyday grocery uh products like
49. 1:56let's say toilet paper right that qual
50. 1:58that product's quality and image just
51. 2:00does not support uh having a such a high
52. 2:03price
53. 2:04whereas uh you know smartphones or
54. 2:06apple's iphone
55. 2:08that's an example where apple can afford
56. 2:10to skim because
57. 2:11uh the the iphone's quality and image
58. 2:13support this high price
59. 2:17it's also useful when the costs of low
60. 2:19volume do not cancel the benefits of the
61. 2:22higher price so
62. 2:23we want to be careful we know that when
63. 2:26we produce more of something we can
64. 2:27actually drive our own costs down and
65. 2:30because we're not selling that many
66. 2:32units with market skimming we want to
67. 2:34make sure that by producing a lower
68. 2:36volume we're not actually canceling the
69. 2:38benefit of of setting this higher price
70. 2:42it's also useful when competitors cannot
71. 2:45easily enter the market and undercut our
72. 2:48price so again this relates to that
73. 2:50first point about quality and image we
74. 2:52want to make sure that this is not a
75. 2:54hyper competitive market where
76. 2:56we have lots of competitors able to
77. 2:58compete on price
78. 3:01on the other hand market penetration is
79. 3:04setting a low initial price in order to
80. 3:06penetrate the market quickly and deeply
81. 3:10and when we choose market penetration we
82. 3:12can usually attract a large number of
83. 3:14buyers very quickly and win a large
84. 3:17market share
85. 3:20now with market penetration this is a
86. 3:22useful strategy when
87. 3:24first of all the market is price
88. 3:26sensitive so that means that low prices
89. 3:29produce
90. 3:30market growth
91. 3:31this needs to be again
92. 3:34items where customers are looking to get
93. 3:36the greatest value and are going to opt
94. 3:39for the low price
95. 3:41it's also useful when uh costs fall as
96. 3:44sales volume increases because uh we're
97. 3:48setting the price low we expect to sell
98. 3:51a higher number of units that can
99. 3:53actually be helpful because our cost
100. 3:54will fall the more uh our unit costs
101. 3:57will fall the more that we produce
102. 4:00generally
103. 4:01and finally it's useful when competition
104. 4:03can be kept out of the market with low
105. 4:05pricing
106. 4:06so if we're in a market where
107. 4:09again it's very price sensitive we can
108. 4:12potentially ward off any competition or
109. 4:15some competition by setting this this
110. 4:17low price
111. 4:20so if we were to visualize what these
112. 4:22two strategies would look like we could
113. 4:24maybe do so uh on a
114. 4:26picture like this this is a simple graph
115. 4:29on the left we have a willingness to pay
116. 4:32and we've set it as low or high so from
117. 4:35ranging from a dollar to let's say 15
118. 4:38and then on this axis we have the market
119. 4:42so what's depicted here at the top
120. 4:45here's where we would be market skimming
121. 4:48if we were setting the price at 15
122. 4:51we would be making only a few sales but
123. 4:53each one of these sales would be highly
124. 4:55profitable and as i said before
125. 4:58again a common strategy for marketers is
126. 5:00to then drop the flight price slightly
127. 5:02and and skim again
128. 5:05compare that to a market penetration
129. 5:08strategy where we set the price at one
130. 5:10dollar
131. 5:10which is at or below everyone's
132. 5:12willingness to pay and we make many
133. 5:14sales
134. 5:15now this is a very simplified
135. 5:18diagram or picture here because really
136. 5:21these
137. 5:22we wouldn't be doing these two options
138. 5:23with with a single product right keep in
139. 5:26mind uh market penetration and market
140. 5:28skimming are very different strategies
141. 5:30and apply to different products we see
142. 5:33market skimming with you know high-end
143. 5:35goods or goods that have
144. 5:38quality image associated with them and
145. 5:40we see market penetration often with um
146. 5:43convenience products things like
147. 5:45toothpaste toilet paper
148. 5:47uh and so on so keep that in mind as as
149. 5:51we look at
150. 5:52setting prices for new products
151. 5:55so that was just a very quick look at
152. 5:57some additional pricing considerations
153. 5:59related to when a marketer has a new
154. 6:02product in the market