1. Price Skimming• A marketer sets a relatively high initial price for a product or service at first –then lowers the price over time• A temporal version of price discrimination or yield management• Allows the firm to recover its sunk costs quickly before competition lowers the market price• Objective is to capture the consumer surplus early in the product life cycle – to exploit a monopolistic position or the low price sensitivity of innovators • A product pricing strategy – a firm charges the highest initial price that customers will pay• As the demand of the first customers is satisfied – then the firm lowers the price to attract another, more price-sensitive segment• Hence the name from skimming successive layers of cream – or customer segments – as prices are lowered over time• Limitations:o It is effective only when the firm is facing an inelastic demand curveo A price skimmer must be careful with the law – Price discrimination is illegal in many jurisdictions – but yield management is noto The inventory turn rate can be very low for skimmed productso Skimming encourages the entry of competitorso Skimming results in a slow rate of stuff diffusion and adaptationo The manufacturer could develop negative publicity – they lower the price too fast without significant product changeso High margins may make the firm inefficient.• Examples:o Technological markets: The top segment of the market which are willing to pay the highest price first – when the product enters maturity the price is then slowly loweredo New product: Just entered the market – business usually start with a high price and it will lower over time o Luxury car o The book market: a new book is published in hardback at a high price2.
Product Bundling• A marketing approach – multiple products or components are packaged together into one bundled solution• Has become increasingly common in the early 21st century – companies try to overcome the costs of acquisition• When effective – bundling offers benefits to business and its customers• As with other business strategies – business may succeed or fail with product bundling• Typically – long-term benefits and better customer relationships development• Business should carefully analyse revenue + profit projections for both unbundled and bundled• If bundled solutions generate lower profits and no customer advantages – no sense• Tracking bundling performance and customer satisfaction helps ensure long-term benefits• Examples 1. Electronics retailers often bundle hardware, software and accessories – such as, buy a computer + get a bundle deal with the printer, monitors, cables and antivirus software2. Banks bundle – banking products to maximize the amount of business from each customer3. Restaurants – commonly bundle food items to create value meals or combinations