One industry that’s synonymous with price skimming is the smartphone market, and Apple is the industry leader. Tech businesses are known to regularly adopt price skimming as they can use their patented, original technologies as their competitive advantage. Intended to help businesses capitalise on sales of new products and services, price skimming allows businesses to maximise profits from early adopters who have an interest in new and innovative products. Price skimming is a pricing strategy whereby businesses set high prices for their product or service during the introductory phase. This low pricing, combined with its streaming and online offering, enabled Netflix to pull in subscribers and gain its competitive advantage. Its original package offered tiered price points and enabled customers to rent three DVDs simultaneously for $14.99, amounting to just over $1 per DVD per month for customers. Starting as a mail-order, online e-commerce business for movie rentals, Netflix used low price points initially to attract customers away from Blockbuster its largest competitor at the time. While now a market leader, Netflix is a great example of a business that successfully used penetration pricing to its advantage when it first launched back in 1997. It is typically used by new companies or to support a new product launch to draw consumers away from the competition. Penetration pricing is when a business offers low introductory prices on products and services (not to be confused with competitive or economy pricing, as penetration pricing is considered more of a strategic move / short-term strategy). That way, you have an additional guarantee of cash-flow and income while your premium upgrade or service is being considered by your audience. If you’re considering this method, it might be smart to think about an alternative way you can monetise your free product or service. With the premium service, you hear no ads (or other interruptions), can stream your music to listen offline, and more. Spotify is one of the largest music providers with millions of active users and subscribers all over the world, so it’s safe to say this strategy has worked well for them. With the free version, you can listen to music but you will periodically hear an ad or two – and this is how the company is able to still profit from its free audience. Spotify is one of the most well-known companies in the world right now that uses a freemium revenue model: they offer a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee. It's also become the favoured monetisation method for fledgling web start-ups. Skype, LinkedIn, Flickr and dating site all employ the model. Regular web users can be attracted by free services which are paid for by a significant minority of users enthusiastic enough to upgrade to premium ‘added extras'. To capitalise the most on this pricing strategy, the upgrade must be something that the product can run functionally without, but that people deeply want and need to add-on. Pricing communication shapes the customer’s perception of value.Īnother interesting strategy and something to keep in mind, which can be added to any of the other more in-depth strategies here, is psychological pricing:įreemium is the process of offering a basic product or service for free, while charging a premium for advanced upgrades or special features.If you want to change your prices, you must reframe the product or service, and.In The Psychology of Price, Leigh Cauldwell (behavioural economist and pricing expert) shares two interesting tips that you should keep in mind for any pricing strategy you pursue: These are the top pricing strategies you can consider for your new business, from low-to-higher end of the scale. This article is for those who are ready to take the risk of being different, manage their project to the highest levels, and consider strategies that their competitors haven’t – all in order to rise to the top of the market. When we talk about pricing strategy, for the purpose of this article, we will be talking about innovative strategies you can use to make your business stand out in the industry. With a plan or a vision for what you hope to achieve through your pricing (beyond sales of course), you can take your business to new heights in terms of industry recognition, brand perception and customer preference among other things. Believe it or not, the best businesses don’t just throw a price on their products randomly without any further thought – you're planning for profit, not loss after all.
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