Market-Skimming Pricing

Market-Skimming Pricing is when "companies invent new products and set high initial prices to "skim" revenues layer by layer from the market" (Kotler 270). There are three conditions that are necessary for market skimming to make sense and actually work. The product's quality has to match the price and customers have to be willing to pay the price, the costs of producing a smaller volume won't end up hurting the producer, and it must be hard for competitors to enter into the market and under price the product (Kotler 271).

A great example of a company that actually did this tactic was Apple in it's release of the iPhone. Initially, the Apple iPhone was priced at $599 for it's most expensive model. However, just two months later, Apple lowered the iPhone's price by $200 and then again ten months later by $100. Apple also met all three requirements for implementing the market skimming technique. It had huge anticipation for the iPhone before it came out, which led to many customers willing to pay the high initial price. This allowed Apple to capitalize and earn more revenue just off the excitement of the consumers. There also couldn't have been a negative effect of producing a small volume since even though it was hard to find iPhones due to places being sold out, dedicated customers were willing to wait until they came available. The iPhone was also one of a kind when it first came out (which it still pretty much is) and had no competition, therefore Apple did not have to worry about other company's competing and undercutting their price.

http://www.itworld.com/iphone-timeline-080609

Tyler Stinde, Section E

Market - Skimming Pricing (Price Skimming)

According to the textbook "Marketing: An Introduction" by Armstrong and Kotler, market-skimming price or price skimming is a strategy of 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 skimming makes sense only under certain conditions: the product's quality and image must support its higher price, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more, and finally, there should be a high entry barrier of the industry.

An example that would fall under this category is Amazon-Kindle unveiled by Amazon. Amazon's first offering of Kindle in November 2007 sold out in five and a half hours, and the device remained out of stock for five months until late April 2008.The original Kindle device features a 6 inch (diagonal) 4-level grayscale display, retailed for US $399. Amazon subsequently lowered the price to $359. The $40 drop brings the Kindle down from the initial $400 price it was introduced at. The price drop makes the Kindle even more compelling, that Amzon started to launch more typed of Kindle: Kindle 2, Kindle DX, and even Kindle 2 International Version. Amazon has not only applied the market skimming price strategy, it has also done a great strategy in selling this particular product. Amazon understands that the practice of ‘price skimming’ involves charging a relatively high price for a short time where a new, innovative, or much-improved product is launched onto a market. The objective with skimming is to “skim” off customers who are willing to pay more to have the product sooner; prices are lowered later when demand from the “early adopters” falls. When the demand from "early adopters" falls and more people eventually purchase Kindle with lower prices, Amazon then began to expand the product development by introducing more products still related to Kindle. This is even more of a strategic move by Amazon.

While the battle this year has seemed to focus on Amazon vs. Sony, the moves by Amazon appear to be part of a broader strategy to strike preemptively with a number of competing products hitting the streets. With the concept of market-skimming price, Amazon has a bright prospective in the development of its Kindle.


Clairine B. Runtung
Section G

Value Added Pricing

Value-added pricing is attracting value-added features and services to differentiate a market offering and support higher prices, rather than cutting prices to match competitors (Kotler 260). Some companies do not have to enter into price wars yet still be profitable. We see this in high fashion market. A good example is Armani.

Some product can be very expensive, yet is very popular. An example is Armani clothing. Although the product of Armani is often very expensive, Armani has a solid brand and many people buy Armani products. For example, Armani suit here has a price tag of $1895.00 and Nordstrom offers to sell in its store. Rather than offering a low quality suit with a less price tag, Armani offers high quality designers suit with a high price tag. It uses high quality wool that makes the jacket comfortable. The contemporary design designed under the name of Armani lets the customer have the latest trend, justifying the high price tag. The fact that Nordstrom offers this suit and actually making sales illustrate how some customers are seeking values in the products they buy and they are willing to pay for it.

Nordstrom Armani page
http://shop.nordstrom.com/S/3064633?Category=&Search=True&SearchType=keywordsearch&keyword=armani+suit&origin=searchresults

Shogo Okuda
Section G

Good-Value Pricing

This Mattress Depot USA commercial is a prime example of a form of good-value pricing. According to the textbook, good-value pricing strategies are "offering the right combination of quality and good service at a fair price" (Kotler 261). A type of good-value pricing for retail stores is everyday low pricing (EDLP). With this pricing strategy, stores charge a constant price with very minimal or no temporary price discounts. Other stores, such as Wal-Mart and Safeway, have also adopted this pricing strategy, which is in contrast to high-low pricing, in which retailers charge higher prices on a daily basis, but also has promotions and discounts on certain items quite often.

In this commercial, Mattress Depot USA promises that customers will not only be able to purchase a quality, comfortable mattress, but they will also have the convenience of being able to purchase the mattress whenever they want because they have low prices everyday. Through this commercial, it is clear that Mattress Depot USA is striving to provide a quality product at a fair price.

Karlyn Kurokawa, Section E

Value-Added Pricing

Value-added pricing is a pricing strategy that attaches value-added features and services to differentiate a market offering and support higher prices, rather than cutting prices to match competitors. (Kotler p.262) To increase their pricing power, many companies adopt this strategy. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support higher prices. Their focus is not mainly based on the price to boost annual sales, rather, they keep customers loyal by providing service the customers can't find anywhere else.

An example would be The Whole Foods Market. As everyone might have known, The Whole Foods Market offers natural and organic foods with relatively expensive price compared to other foods retailers. Now that the economy is in recession (and actually is recovering), a lot of consumers are tightening their belt by cutting down on spending, including their purchase of foods and groceries. What makes The Whole Foods market survived within the economic downturn is because it has been able to adopt the value-added pricing strategy. Whole Foods was hit hard by the recession when shoppers cut back their spending. However, according to canadianbusiness.com, the grocer said last quarter that the company is undergoing its emerging recovery. Here is what's special about The Whole Foods Market.

1. Firstly, they add siginificant value on the customers grocery shopping experience. The store's layout and appearance are different from other retailers or grocery stores such as QFC, and even their competitor, Trade Joe's. One of Whole Food Market's philosophy is providing a trip to Whole Foods Market is a place to explore. Its stores are spotless and the merchandising displays are beautiful to the eyes. Shoppers are encouraged to taste and touch almost everything in the store. What's more, Whole Foods Market also pampers the customers' sense of smell as te smell of bread, coffee, smoked meats, and fresh fruits permeate the air.

2. Secondly, The Whole Foods Market believes in its customers as their "evangelists". They offer extraordinary customer service and exceptional customer experience, because they beileve that their customers are going to "give back" to them by spreading the good words of the Whole Foods Market. So, instead of using traditional advertising vehicles, WFM uses the influential power of customers as the advertising vehicle.

There are may more values that the Whole Foods Market add onto their service and treatment to customers. Based on those values, Whole Foods Market is not afraid to sell their products at a higher price than their competitors', thus, applying the concept of value-added pricing strategy.

Clairine B. Runtung
Section G

Promotional Pricing

This Sears ad is an excellent example of promotional pricing. According to Kotler, promotional pricing occurs when "companies will temporarily price their products below the list price and sometimes even below cost to create buying excitement and urgency" (p. 277). This particular Black Friday ad illustrates special-event pricing, which is intended to attract customers during a certain time (in this instance, during the holiday season).

The sense of urgency is apparent because the ad explicitly states that the doorbusters will only be going on from 4 AM to noon on the Friday after Thanksgiving. In addition, the ad shows a variety of sales that Sears planned to have, including $9.99 pair of jeans and $79.99 diamond bracelets. These low-priced items are intended to draw customers in to purchase the items as quickly as possible, and judging from the lines outside of Sears on Black Friday this past year, the company's marketing seemed to be quite effective.

Karlyn Kurokawa, Section E