Skimming or Penetration? Strategic Dynamic Pricing for New Products

39 Pages Posted: 4 Oct 2014

See all articles by Martin Spann

Martin Spann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Marc Fischer

University of Cologne

Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing

Date Written: October 2, 2014

Abstract

Current complex dynamic markets are characterized by numerous brands, each with multiple products and price points, and differentiated on a variety of product attributes plus a large number of new product introductions. This study seeks to analyze dynamic pricing paths in a highly complex branded market, consisting of 663 products under 79 brand names of digital cameras. The authors develop a method to classify dynamic pricing strategies and analyze the choice and correlates of observed pricing paths in the introduction and early growth phase of this market. The authors find that, despite numerous recommendations in the literature for skimming or penetration pricing, market pricing dominates in practice. In particular, the authors find five patterns: skimming (20% frequency), penetration (20% frequency), and three variants of market-pricing patterns (60% frequency), where new products are launched at market-prices. Skimming pricing launches the new product 16% above market price and subsequently increases the price relative to the market price. Penetration pricing launches the new product 18% below the market price and subsequently lowers the price relative to the market price. Firms exhibit a mix of these pricing paths across their portfolio. The specific pricing paths correlate with market, firm, and brand characteristics such as competitive intensity, market pioneering, brand reputation, and experience effects. The authors discuss managerial implications.

Keywords: Price penetration, price skimming, dynamic pricing strategy, product life cycle, consumer durables, brand competition

Suggested Citation

Spann, Martin and Fischer, Marc and Tellis, Gerard J., Skimming or Penetration? Strategic Dynamic Pricing for New Products (October 2, 2014). Available at SSRN: https://ssrn.com/abstract=2504719 or http://dx.doi.org/10.2139/ssrn.2504719

Martin Spann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28
Munich, 80539
Germany

Marc Fischer

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Gerard J. Tellis (Contact Author)

University of Southern California - Marshall School of Business, Department of Marketing ( email )

Hoffman Hall 701
Los Angeles, CA 90089-0443
United States
213-740-5031 (Phone)
213-740-7828 (Fax)

HOME PAGE: http://gtellis.net

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