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Pricing Strategies from the multinationals that can be used in your business and any business

1, Price Skimming using a Premium product: Hardback Books.

Price skimming is a strategy used by many producers and retailers, as is charging a premium for a premium version of a product and the two are often used together. This is the case with book publishing and a way to avoid under-charging those who will pay more.

To the consumer electronics industry they are known as ‘early adopters’, those who want a product as soon as it comes out and are not very Price Sensitive, meaning they are less affected in their buying decisions by price. They exist for publishing as well and probably do for your products, in publishing there will be those people who want a book as soon as it comes out and often this will be the hard back version., for example many Harry Potter fans will buy the book when it comes out without considering the price.
Which may be 15.99 for the Hardback with the soft back coming out later at between half and two thirds of the price.

The fact that they are buying a premium version of a book, the hard back rather than the later released and cheaper soft back, has two main advantages. Firstly it helps the buyer justify the extra price for buying the product early whereas if they could get exactly the same thing six months later at a lower price they might not be able to justify it. Secondly charging a high price for a product at launch and then drastically dropping it can make a consumer feel they have been coned and affect their feelings towards a brand the extra perceived value of the Hard Back means they consider it worth more than the cheaper paperback, although the extra costs to the publisher will be a few pence.

With the skimming strategies used elsewhere, for example with electronics prices for the same or very similar products can drop drastically for example early flat screen TVs could cost amounts in 5 figures whereas now you can pay less than £500 for a comparable or better product. This stops many being early adopters who wait for the same TV to come down in price. Offering a slightly different product, even if it is just a cheap to manufacturer hard cover, a limited edition colour variant or a free goody bag, can avoid this problem.

If you are launching a new product think about using price skimming where those who are not price sensitive pay more for being early adopters, this obviously works best for products with some uniqueness to them, for example if you have a product such as a piece of software which can save time for those using files on different computers, some professionals may see the value instantly and be early adopters who will not be concerned by a high price, others may expect the price to come down or expect competitors to offer similar software cheaper in the near future, by making the initial product a premium version with extra features and showing a normal version to come soon this may negate this problem.

This strategy can work for services as well, for example if a Tanning shop has a new spray tan booth and it is the first of its type in town many customers will want to be among the first to try it for prestige reasons as well as out of interest. With the tanning lab you could offer an extra to make it seem more attractive at a high price such as a free robe for every user during the first month.

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