S7 E19 – Pricing strategies for start ups with Jeremy Gray

Skimming Pricing Strategy A skimming pricing strategy is when companies charge the highest possible price for a new product to early adopters of new technology and then lower the price over time to attract later adopters and a product cost decrease due to efficiencies and economy of scale. I can recall when digital watches were first introduced in the early 1970’s their prices were the equivalent of an expensive analogue watch. Prices quickly fell and today a digital watch can be a throw away fashion item. A couple of disadvantages of a skimming strategy are it can upset customers who paid a higher price for an item only to see it offered a much lower price soon after they purchased the item and secondly if the high price is held too long it can create a margin umbrella for a competitor to enter the market and take away your leadership position. Penetration Pricing Strategy Contrasted with skimming pricing, a penetration pricing strategy is when companies enter the market with an extremely low price, effectively drawing attention (and revenue) away from higher-priced competitors. This pricing method works best for brand new businesses looking for customers or for businesses that are breaking into an existing, competitive market. The strategy is all about disruption and temporary loss … and hoping that your initial customers stick around as you eventually raise prices. A challenge to businesses that follow a penetration pricing is that it invites a price war with the incumbent businesses. Your more established competitors may drop their prices with the intention of preventing you from gaining a foothold in their market. The second problem is ensuring you have the valuation proposition to allow you to raise prices and keep the customers you have gained with your low-price offering Premium Pricing Strategy Also known as premium pricing and luxury pricing, a prestige pricing strategy is when companies price their products high to present the image that their products are high-value, luxury, or premium. Prestige pricing focuses on the perceived value of a product rather than the actual value or production cost. Prestige pricing is a direct function of brand awareness and brand perception. Brands who apply this pricing method are known for providing value and status through their products — which is why they’re priced higher than other competitors. Fashion and technology are often priced using this strategy because they can be marketed as luxurious, exclusive, and rare. Dynamic Pricing Strategy Dynamic pricing is also known as surge pricing, demand pricing, or time-based pricing. It’s a flexible pricing strategy where prices fluctuate based on market and customer demand. The best-known global example is Uber. Or here in Singapore Grab – Example of closing of bars at 10:30