Journal article Open Access

Skimming or Penetration? Strategic Dynamic Pricing for New Products

Spann, Martin; Fischer, Marc; Tellis, Gerard J.

Current complex dynamic markets are characterized by numerous brands, each with multiple products and price points, and differentiated on a variety of product attributes plus a large number of new product introductions. This study seeks to analyze dynamic pricing paths in a highly complex branded market, consisting of 663 products under 79 brand names of digital cameras. The authors develop 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 find that, despite numerous recommendations in the literature for skimming or penetration pricing, market pricing dominates in practice. In particular, the authors find five patterns: skimming (20% frequency), penetration (20% frequency), and three variants of market-pricing patterns (60% frequency), where new products are launched at market prices. Skimming pricing launches the new product 16% above the market price and subsequently increases the price relative to the market price. Penetration pricing launches the new product 18% below the market price and subsequently lowers the price relative to the market price. Firms exhibit a mix of these pricing paths across their portfolios. The specific pricing paths correlate with market, firm, and brand characteristics such as competitive intensity, market pioneering, brand reputation, and experience effects. The authors discuss managerial implications. Keywords: price penetration; price skimming; dynamic pricing strategy; product life cycle; consumer durables; brand competition

Files (287.1 kB)
Name Size
article.pdf
md5:0ef657f1f8ac425f37e3f6ba5becb6aa
287.1 kB Download
155
144
views
downloads
Views 155
Downloads 144
Data volume 41.3 MB
Unique views 153
Unique downloads 136

Share

Cite as