The introduction of new product in the market is challenging especially in setting prices for the first time. In this case, a firm can choose between two broad strategies;



Market-Skimming Pricing (Price Skimming).

This is when a firm sets a high initial price for a product. The motive behind is to serve consumers who are willing to pay a high price (top of the market) and buy products early. By using this strategy, the firm gets back its investment in the product faster. 

Market skimming makes sense only,

(1) if product's quality and image support its high price and there are enough buyers who want a product at that price. 

(2) if the costs of producing a smaller volume can't be so high that they cancel the advantage of charging more. 

(3) other reason depends on if the competitors can't enter the market easily and undercut the high price of the firm charges.


Market-Penetration Pricing.

This is one in which a low initial price is set. This happens when many competitive products are already in the market. The goal is to get as much of the market as possible. One of the conditions for this strategy is that the market is considered to be high price sensitive so that a low price produces more market growth. It is also conducive to keep out the competition, and the penetration price setter maintains its low price position.


NOTE: An entrepreneur must be aware of the fact that things change and so does the price of product or service. It is, therefore, imperative to be creative in thinking of new ways to sell more to existing customers or to attract new customer groups.


To achieve this, one can;

(i) Listen to your customers and notice their commenting a journal or file and make sure that you review them periodically to glean new ideas.

(ii) Be flexible by constantly reviewing both internal and external factors and make calculations to determine if price change would affect a new situation.

(iii) Boost your records by keeping records, good records helps you to set prices and track the performance of your pricing.

(iv) Cover the basics of pricing which are product price, competition, and customers, and make sure that you blend pricing methods to balance the three basics.

(v) Do your homework by keeping good notes of how you arrived at a price so you can make similar assumptions in future.