Thursday, March 4, 2010

New -Product Pricing Strategies

In the textbook, there are two ways to pricing strategies a company can implement when introducing a new product. They are market-skimming pricing and market penetration pricing. Market-skimming pricing is defined as setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. Market-penetration is defined as setting a low price for a new product in order to attract a large number of buyers and a large market share.

Market-Skimming Pricing

In 2006 Sony released the Playstation 3 (PS3). The price for the 60gb model was an astronomical $699 and the 20gb model was $499. Many prospective buyers were turned off by these prices because they were very high for a gaming console and the alternatives (Xbox 360 and Nintendo Wii) were much cheaper. The company issued price cuts when it introduced two models, the 80gb and 40gb, and phasing out the 60gb and 20gb. The 80gb model was priced at $499 and the 40gb was priced at $399. In 2009, Sony issued another price cut and eliminated the 40gb and 80gb models, replacing it with 120gb and 250gb models. The 120gb retailed for $299 while the $250 model retailed for $349.99. Sony also used this strategy for previous consoles, the Playstation 2 retailed for $299 at launch; Sony later cut the price to $199 and finally $99 today. The PS3 currently has the smallest share among its competition. Although this is a culmination of multiple factors, the initially high price might have turned off several prospective buyers who instead purchased cheaper alternatives such as the Nintendo Wii and Microsoft Xbox 360.

Market-Penetration Pricing

Nintendo adopted a market-penetration pricing strategy for its latest console, the Wii. The Wii was priced at $249.99 at launch, much cheaper than the 360 and PS3. This pricing strategy as well as its innovations are the main contributor to its success. It currently holds the largest market share among its competitors. Nintendo issued only one price cut so far, in 2009, lowering the price of the Wii to $199.

Jose Jacinto

Section E


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