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Skimming or Penetration? Strategic Dynamic Pricing for New Products

Author

Listed:
  • Martin Spann

    (Munich School of Management, Ludwig-Maximilians-University Munich, D-80539 Munich, Germany)

  • Marc Fischer

    (Faculty of Management, Economics and Social Sciences, University of Cologne, D-50923 Cologne, Germany; and UTS Business School, Sydney, NSW 2007, Australia)

  • Gerard J. Tellis

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

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 the 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 portfolios. 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.

Suggested Citation

  • Martin Spann & Marc Fischer & Gerard J. Tellis, 2015. "Skimming or Penetration? Strategic Dynamic Pricing for New Products," Marketing Science, INFORMS, vol. 34(2), pages 235-249, March.
    • Handle: RePEc:inm:ormksc:v:34:y:2015:i:2:p:235-249
    DOI: 10.1287/mksc.2014.0891
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    References listed on IDEAS

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