The internet micro environment
Introduction The environment under which organization functions determines how it will conduct its business. Organizations have to constantly monitor and appraise the external business environment. Organizations have to make changes in its operations in accordance to the environment as to be profitable and effective. Therefore, understanding the business environment is important before developing any marketing […]
Role of Consumer Behaviour in Advertising
Marketers need to understand the buying behaviour of consumers while designing their advertisements for the desired impact. Advertisements play an essential role in creating an image of a product in the minds of consumers. Advertisements must be catchy and communicate relevant information to consumers. Understanding the needs of the consumer is really important when it […]
Adapting Marketing to the New Economy
Companies in 21st century have to adapt to ever changing environment. At present, companies represent a curious mix of old as well as the new economy. A great deal of research has already been done with respect to the old economy, but for the new economy, companies are learning it rather hard way. Companies have […]
The internet macro-environment
Introduction An organization is often influenced by the environment they work under. There are several factors which influence such as customers, suppliers etc of the micro environment can be controlled to a certain extent by the organization. The nature of micro environment is very much dependent upon macro environmental factors. The macro environment consists of […]
Advocacy Groups and Corporate Social Responsibility (CSR)
We have seen how corporations need to embrace CSR as a paradigm if the challenges of the 21st century have to be met. We have also examined the role of the media in championing CSR. In this article, we look at how Advocacy Groups and Pressure Groups like Greenpeace and Media Lens along with other […]
Pricing is an important parameter; organizations need to take care of while launching a new product or service in the market. Before deciding the price of a new product, it is essential for organizations to understand and also calculate total costs involved in the entire process of the product development be it designing, manufacturing or delivering the same. No organization works for charity and thus the price of a new product or service ought to be decided keeping in mind all such factors.
Penetration and skimming are two strategies which play a crucial role in deciding the price of a new product. When a new product is launched in the market, first and foremost it needs to meet and exceed the expectations of customers and then compete with other brands available in the market.
Competition does not really matter in the initial stages of product launch. What is more important at this stage is the survival of the product. Remember, price of a new product does affect the buying behaviour of end-users.
As an end-user if you come across a new product which is comparatively cheaper than the one you are already using, definitely you would not think twice before purchasing the same. The same happens in cases of new services as well. Why would you invest in an expensive holiday package when there is a new offer in the market at a comparatively low price?
Penetration refers to keeping the price of a new product relatively low such that it covers just the manufacturing costs while earning minimum profits for the organization. Keeping the price of a new product relatively low in the initial stages helps it penetrate the market easily and also get accepted among target audience.
Keeping the price a little low not only reduces the competition from other brands but also increases the sales and makes the product popular in the market. No one would even bother to look at your product if it is priced too high at the introductory stage, unless and until it has some exclusive features.
Organizations which depend on skimming strategy for pricing a new product often keep it at high prices and target only those who are actually interested in buying the new product. As against penetration strategy where the focus is to ensure the product is accepted by a wide range of audience, pricing as per skimming strategy ensures respective organizations earn huge profits. Organizations, in this case keeps a relatively high price for their products as they believe there is no harm in charging more from the end-users in exchange of a premium product.
A BMW or a Mercedes is never introduced at low prices as people do not mind paying for the comforts and luxuries, such brands offer. Can the price of a Maruti Suzuki car ever match with a BMW? Never. One dollar shops are very popular in US where products are priced at just one dollar. Such shops manage to earn huge margins as customers prefer buying more from these shops rather than burning a hole in their pockets.
Organizations dealing in premium products often depend on skimming technique to price their product. Trust me, keeping the price high, sometimes, ensures the product is not only exclusive but also offers additional features and benefits. Have you ever come across a low priced Hidesign Bag? Very rare. That’s the speciality and uniqueness of the brand.
A five star category hotel, if, introduces new deals and schemes for their regular customers, can never price it the way budget hotels do. Pricing also decides the premiumness of a certain brand.
A new product is also priced keeping in mind the paying capacity of target audience, prices offered by competitors and brand value.
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