Penetration strategies occur more often if firms have larger cumulated sales,” says author Gerard Tellis. “Market pricing is also more likely to be adopted by late entrants, whereas firms that have established a reputation in the market rather adopt a skimming strategy. “Market-pricing and penetration strategies occur more often after the takeoff of the market and under increased competitive intensity,” says author Marc Fischer. The choice of strategy is associated with market, firm, and brand characteristics. The authors find that firms exhibit various dynamic pricing strategies simultaneously over a portfolio of products. Some competitors would undercut the Skimming Price limiting margins while others would match the penetration price preventing economies of scale.” Thus despite experts’ recommendations, skimming or penetration are not practiced much. Professor Tellis explains, “Market conditions are so restrictive that they limit strategic pricing. They developed a method to classify dynamic pricing strategies and analyze the choice and correlates of observed pricing paths in the introduction and early growth phase of this market. ![]() The authors obtained these results from an analysis of dynamic pricing strategies in a highly complex branded market, consisting of 663 products under 79 brand names of digital cameras in a large European country. However, for 60% of new products, firms use a straightforward competitive or market pricing strategy. In contrast, the authors find that manufacturers of digital cameras adopt penetration and skimming strategies, for roughly a small 20% of new products. Marketers had long assumed that firms adopted either one of these two strategies for pricing new products. “This strategy sells low on the hope of driving down costs and reaping a profit in the future,” says Professor Fischer. On the other hand, penetration strategy involves selling at a low price, even below costs, in order to gain a large chunk of the market and achieve economies of scale. “This strategy basically attempts to skim consumer surplus” says Professor Spann. A skimming strategy involves charging a price much above costs in order to exploit demand for the new product that offers improvements in quality or features. Strategists have long recommended that marketers use either a skimming or a penetration strategy for pricing new products. Tellis, professor at the Marshall School of Business, University of Southern California. The research was conducted by Martin Spann, professor at Ludwig-Maximilians-University Munich (Germany), Marc Fischer, professor at the University of Cologne (Germany) and the University of Technology Sydney (Australia), and Gerard J. The study will be published in Marketing Science, and is titled, “Skimming or Penetration? Strategic Dynamic Pricing for New Products”. CATONSVILLE, MD, March 20, 2015 - A new study finds that most firms do not use a Skimming or Penetration Strategy to price new products.
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