In the late 1990s, Netflix introduced its movie rental service. This strategy’s objective is to penetrate the market, or gain as many customers in all segments as possible from the beginning of the product life cycle. The penetration pricing strategy is one in which the new product or service is set at the lowest price possible. The opposite of price skimming is penetration pricing. Each year thereafter, it lowered the price-and gained new customers-until it eventually reached a price of $299. With little competition and a well-established brand, it was successful. For example, when Sony launched the PlayStation 3, it was set at a fairly high price of $599. Innovative technology often uses price skimming. The term skimming comes from the skimming the cream, layer by layer, from raw milk-or in this case, each segment of customers. Once achieved, the price is lowered to attract another segment of the market and so on. The goal of price skimming is to attract the segment of the market that is willing to pay the highest possible price for the product. Price skimming is a new-product strategy in which marketers choose to initially set a high price for a product or service and lower it over time. Therefore, it is important for marketers to choose an appropriate price that both appeals to buyers and helps to recuperate the costs of research and development so that the company can begin to maximize profits more quickly. Remember that when a company introduces a new product to the market, a good deal of financial resources have already been used even before the first unit is sold. When a new product is introduced to the market, marketers often use one of three pricing strategies. 2 Explain each pricing strategy for new products.1 List the pricing strategies for new products.By the end of this section, you will be able to:
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