New-Product Pricing: Penetration Pricing and Term Paper

' The consumer is willing to pay more to communicate this image, and thus the high pricing of new goods or 'skimming' is a reasonable strategy for the company.

Low pricing of new products is best to use when trying to lure consumers to adopt a particular 'habit.' Gym memberships with introductory rate offers for new food products are often priced low to encourage consumers to give them a try and to make working out or a latte part of the consumer's everyday habits. However, clothing is not a 'habit' -- once it is purchased, it is purchased, and repeat purchases are less of a fashion company's bread and butter (no pun intended) than for service-based enterprises like food companies.

Fashion companies like the Gap know that they can secure the attention of some young consumers willing to pay more for new items, while other consumers will go to the sales racks immediately. There is little value in not trying to sell clothing at an initial premium, given that the consumers looking for new items are not necessarily the same consumers who gravitate to the sales racks. Many Gap consumers will automatically head for the sales, even if the new pea coats are priced at $49.99 versus the usual $79.99 they are sold at, at the beginning of the season. However, some consumers want 'the next new thing' and are mainly attracted by the idea of buying something new, rather than securing a value. Market skimming off such consumers is a vital component of any fashion business, and when such style-obsessed consumers begin to tighten their wallets for luxury fashion purchases; companies on both the low and high ends of the fashion spectrum begin to worry.

Reference

New -Product Pricing Strategies. Marketing. March 2010. November 4, 2010.

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