While now a market leader, Netflix is a great example of a business that successfully used penetration pricing to its advantage when it first launched back in 1997. It is typically used by new companies or to support a new product launch to draw consumers away from the competition. Penetration pricing is when a business offers low introductory prices on products and services (not to be confused with competitive or economy pricing, as penetration pricing is considered more of a strategic move / short-term strategy). That way, you have an additional guarantee of cash-flow and income while your premium upgrade or service is being considered by your audience. If you’re considering this method, it might be smart to think about an alternative way you can monetise your free product or service. With the premium service, you hear no ads (or other interruptions), can stream your music to listen offline, and more. Spotify is one of the largest music providers with millions of active users and subscribers all over the world, so it’s safe to say this strategy has worked well for them. With the free version, you can listen to music but you will periodically hear an ad or two – and this is how the company is able to still profit from its free audience. Spotify is one of the most well-known companies in the world right now that uses a freemium revenue model: they offer a basic, limited, ad-supported service for free and an unlimited premium service for a subscription fee. It's also become the favoured monetisation method for fledgling web start-ups. Skype, LinkedIn, Flickr and dating site all employ the model. Regular web users can be attracted by free services which are paid for by a significant minority of users enthusiastic enough to upgrade to premium ‘added extras'. To capitalise the most on this pricing strategy, the upgrade must be something that the product can run functionally without, but that people deeply want and need to add-on. In the Apple shop, the iPhone 14 Plus currently retails at £1,099, while the iPhone 14 retails at £849*.įreemium is the process of offering a basic product or service for free, while charging a premium for advanced upgrades or special features. This price point maximised on consumer willingness to pay more for cutting-edge technology and helped generate an aura around the iPhone.Īpple has since evolved its approach to price skimming, and while prices have dropped slightly for its smartphones, it has largely maintained its price by increasing the value of its future iterations. When Apple launched its iPhone to the market it set a high price point, despite being an entirely new product. One industry that’s synonymous with price skimming is the smartphone market, and Apple is the industry leader. Tech businesses are known to regularly adopt price skimming as they can use their patented, original technologies as their competitive advantage. Intended to help businesses capitalise on sales of new products and services, price skimming allows businesses to maximise profits from early adopters who have an interest in new and innovative products. Price skimming is a pricing strategy whereby businesses set high prices for their product or service during the introductory phase. Not to mention a lack of customer loyalty and a complete cacophony of outrage if you ever change your mind and dare to raise any prices again.ĭespite the caution here, there are some benefits to lower pricing strategies as long as they are executed correctly – particularly in the ways we’ll discuss in the ‘ Competitive Or Economy, Penetration and Price Skimming’ sections of our pricing strategies below. It tends to attract lower-quality customers too, increasing the likelihood of returns, refunds and complaints. Most people are of the belief that “you get what you pay for” so low prices can sometimes equal low quality and value in customers' minds.
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