Skimming or Penetration.pdf - Skimming or Penetration Strategic Dynamic Pricing for New Products Martin Spann 1 Marc Fischer 2 Gerard J Tellis 3

Skimming or Penetration.pdf - Skimming or Penetration...

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Skimming or Penetration?
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2The current market environment, especially for high-tech categories, is characterized with rapid introductions of new products. In this environment, the pricing of new products is a difficult and important task affecting the financial success of a company. On the one hand, if the price is set too low, a company not only gives up potential revenues, but also sets a low value position for this new product, which can make future price increases difficult (Marn, Roegner, and Zawada 2003). On the other hand, a price set too high might harm the diffusion of the new product (Golder and Tellis 2003), limit gains from experience effects (Tellis 1986), or inhibit the product from reaching its critical mass for success (Dhebar and Oren 1985). The literature suggests two basic dynamic pricing strategies for new products, skimmingand penetrationstrategy (e.g., Kotler and Armstrong 2005; Monroe 2003; Nagle and Hogan 2006). A skimming strategy involves charging a high introduction price, which is subsequently lowered (Dean 1976). The rationale of this strategy is to skim surplus from customers early in the product life cycle in order to exploit a monopolistic position or a low price sensitivity of innova- tors (e.g., Dean 1976; Marn, Roegner, and Zawada 2003). A penetration strategy involves charg-
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