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Price-Promotion Strategies

Disciplines > Marketing > Strategy > Price-Promotion Strategies

Price | Promotion | Strategies | See also

There are four launch strategies that can be used, based on intended price and desired market penetration.

Price level

Pricing is a difficult decision when launching a product and a high or low pricing strategy may be taken, with the general effect that the higher the price the less products you will sell (yet the higher the profit margin will be).

Higher pricing seeks a premium market either because the product is desirable or because it is necessary and there are no cheaper options. Market positioning needs to take account of this.

It is also possible to take a mid-range, moderate pricing approach, although a danger with this occurs where the product falls between the two perceptual viewpoints of cheap-and-cheerful and expensive-quality.

Promotion level

Whether price is high or low, you can still have high or low promotion with different effects.

Promotion is not cheap and it there is a clear return-on-investment (ROI) decision here. It may seem that only higher price merits higher promotion, yet a strong promotion of a cheap product can lead to rapid penetration into a large market, gaining an unassailable position and share.

Strategies

There are four launch strategies that can be used, based on whether price and promotion are high or low. Prices are 'pull' based and affect market penetration and share. Promotion adds push to this.

Shallow penetration

With low price the product value increases, making it both desirable and affordable. With low promotion, however, only a limited market penetration will be achieved as fewer people will know about the product.

There can be good reason to start with a shallow penetration strategy, for example:

• When there is a limited ability to deliver any volume of products.
• Where marketing budget is low.
• Where customer feedback is being sought to improve the product before a wider deployment.

It is possible with low promotion to get a higher penetration if creative approaches are used. In particular the product can become a 'worst kept secret' as the underground buzz of inter-customer provides much free communication and promotion of the product.

Deep penetration

Where you are confident about the new product or where you are seeking to quickly gain significant market share, then it becomes necessary to spend whatever is necessary to gain a quick and deep penetration of the market, acquiring significant market share.

With a lower price, more products will be sold, although at a reduced incremental profit. This may be compensated for by high volumes. Sometimes little or no profit is accepted if gaining market share today will give a cash cow tomorrow (or at least some time in the future).

This strategy is particularly useful if the product is relatively easy to copy or substitute and you need to gain brand dominance before a serious competitor appears on the scene.

Rapid skim

A high price is less likely than a low price to achieve much in the way of market penetration. However, this may be compensated by a larger profit margin per product.

This is a typical strategy for fashion products that have a relatively short lifespan and are highly desirable from the beginning. Strong promotion is helpful here to maximize the returns, which should be quick and high.

Slow skim

When there is less hurry to get returns, but a decent return per item sold is required, then the high-price market-skimming method may be taken at a slower pace.

When the product is being tested in the market, this may be a preferable strategy to 'shallow penetration' as the higher price will limit take-up further, although there is the risk here of a higher price leading to expectations of higher quality than is delivered.

See also

Porter's Five Forces