Best for: products that are innovative or trendy, have very little competition and appeal to early adopters.Pricing is one of the most strategic decisions a company can make, yet it is often overlooked and treated as a tactic that aims to drive short-term results. Definition: This strategy entails pricing new products at the highest initial price that customers will pay, then gradually lowering it over time. Example of Price skimming : The implications of an imperfect market's downward sloping demand curve are evident in a typical new product pricing decision: should a product be launched with an aggressively low price from the start (penetration strategy), or should the product be introduced at a high initial price with subsequent price reductions.

It might just be the most important touch-point to your customers that lets them know whether your business is something worth investing their time and money into.If you think about the most important factors affecting consumersвЂ™ purchase decisions, the most common occurrence is that everything comes second to pricing. In addition to the quantitative nature of pricing, companies should pay attention to how pricing affects some of the more qualitative features of the business.Pricing is important since itвЂ™s something that defines the value of your products and services. Pricing strategy includes qualitative and quantitative evaluation of the different factors that go into setting a price for the product or service.By approaching pricing from a strategic perspective, companies do not only define how much their products and services cost but also position themselves relative to their competition. A products pricing reflects what the company aims to achieve.Pricing strategy defines the way businesses use price to position themselves in their competitive landscape. Pricing strategies make or break businesses. What is a pricing strategy?Price Skimming: Definition, Strategy, & Examples.

Something that the customer finds valuable doesnвЂ™t necessarily correlate with whatвЂ™s the most expensive for your business to produce.Oftentimes prices are set only based on the quantitative factors that are mentioned above. Companies that actively pursue pricing as an important part of their strategy typically outperform industry peers on several financial metrics.вЂ™вЂ™Psychology has a lot to do with this: Strategic pricing recognizes that purchase decisions are based on emotion, rather than logic. HereвЂ™s what an article published by Deloitte has to say on the matter:вЂвЂ™One study suggests that pricing has two to four times the potential to influence profitability relative to other business levers. Regardless of what the actual purchase price of the product youвЂ™re renting is, itвЂ™s all about creating the value around that product that will result in better profit margins. It sets a productвЂ™s price based either on the value to the customer, or on the competition, rather than the cost of providing the service.

Below we will present five common pricing strategies in more detail.Kotler, P. Based on the competition, market conditions, goals, and your company's offering, you can evaluate the best approach to pricing and position your business on your market. Pricing strategy examplesThe nine quality-pricing model by Philip Kotler offers a great framework to evaluate company's pricing relative to its competitors. Does your pricing set an expectation for a premium, or вЂвЂ™you get what you pay forвЂ™вЂ™ type of customer experience? There is nothing wrong with either way, just keep in mind how your prices affect the image people have about your business and how that should affect your other decisions. In addition to unknowingly sending signals about the quality of your products and services, the decision to compete with lower prices will cause your customer base to consist of more price sensitive consumers who are typically less loyal because they base their decisions on who has the lowest price.Taking into account the qualitative features of business, youвЂ™re making sure the price you set also reflects on the service and image youвЂ™re putting out to the world. Of course, good deals and noticeably lower prices trigger customers into making purchase decisions in your favor, however, it should be considered whether renting or selling more for less is better than renting less for more.LetвЂ™s imagine your prices are considerably lower than the rental shop nearby, all while youвЂ™re offering the same products.

ItвЂ™s effective when your customers are on the verge of the latest products and trends. Price skimmingPrice skimming is a strategy for premium products and services. Englewood Cliffs, New Jersey.

Granted of course that the price youвЂ™ve set isnвЂ™t completely outrageous.Setting a higher price and campaigning the new product addition makes it feel more exclusive. A higher price point means better profit margin leading you to break-even faster. Initially you set the price point slightly higher and lower the price as time goes by and the competitive advantage weakens.A rental business can use price skimming when the availability of certain products is limited and alternatives are under a stone.

Rental businesses that operate seasonally, like ski and surf shops for example, can benefit from this strategy as it doesnвЂ™t take an algorithm to say that selling early-bird deals during the slower months and raising prices when it gets busier is a smart move.Dynamic pricing is all about the demand, and since in the rental industry the inventory is on constant rotation, it would make sense to jump up the price when the demand is at its peak. Truly efficient dynamic pricing requires huge amounts of data and powerful algorithms to optimize the price.Quite a few rental businesses have the resources for that, but fortunately, common sense can still play a role in this world of data and algorithms. Anyone who has booked a flight through an online travel agency has surely stumbled upon a real-life example of dynamic pricing. Dynamic pricingUsing a dynamic pricing strategy means that the prices keep changing depending on different factors like time, for example. So while this is a solid way to start out, to keep your pricing scalable and sustainable other factors and strategies should be taken into consideration.

And if your volumes are not counted in millions, the benefits might not be worth the trouble.

Skimming Pricing Examples