Pricing Strategy for New Products

Recently came across these most popular pricing strategies for new products being launched.

1. Skimming: In this strategy the price for new product is set very high initially (at launch). This ensures getting high revenue from all the segment of buyers. Perhaps launch of a new highly anticipated smartphone is an example for this. Price of the newly launched iPhone or a Samsung flagship phone is always very high initially and with time we can see the prices fall.
2. Penetrative: This is the strategy in which the focus is on grabbing maximum marketshare. Hence, the price of the product is set very low initially (at launch) so that it can penetrate the market and attract buyers of all segments. Reliance Jio is a perfect example for this strategy. The prices of services was zero at launch, eventually they were set at a fraction of the existent competition’s prices. Consequently Jio has been able to grab a significant marketshare in spite of being a new entrant in the industry.
3. High-Low Pricing: In this strategy the pricing is set high but the product is sold with heavy discounts and promotions. The high price (list price) signals to the market that there is immense value being delivered in this product. This is done to ensure an increase in the foot traffic and ensuring that enough interest is generated in the audience. This is seen quite frequently in the Xiaomi products sale.
4. Freemium Pricing: This is the most common pricing model these days. Freemium in itself has many different variations to execute. In one of the variants, the product is available for free for a certain duration only, after which the customer has to purchase the license to continue using. Another variant is based on usage threshold, the customer can use the product until a certain usage threshold is hit (number of transactions, number of users etc.) after which the customer is required to buy.
5. Decoy & Psychological Pricing: The prices for similar products is set differently to drive more sales for the cheaper alternative. SAAS companies use this for driving sales to a specific plan. Retail stores do this at times too, to drive more sales to a new product.
6. Predatory Pricing (can be illegal): In predatory pricing, the product is given away for free. The company may be making loss on each sale but this is potentially done to drive the competition out of the market completely. One example of this is Uber when they started, they were losing money on each transaction. Another legacy example is of Internet Explorer. This was provided for free with the OS by Microsoft. In those days, Netscape Navigator the prominent web browser in the market was a paid product.
7. Dynamic Pricing: This is something we have all experienced in case of Uber. The price is changed based on the demand and/or supply; known as surge pricing in case of Uber. Hotel room booking, flights booking are other examples where dynamic pricing is widely used.

In the Product Development Lifecycle, defining and deciding the Pricing strategy at launch is one of the crucial decisions that paves the way for high product adoption.