New-Product Pricing: Penetration Pricing and

New-Product Pricing: Penetration Pricing and Price Skimming Two classic techniques of pricing a new product exist, that of market-skimming pricing and market penetration pricing. "Market-skimming pricing is defined as setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Market-penetration is defined as setting a low price for a new product in order to attract a large number of buyers and a large market share" (New product pricing strategies, Marketing, 2010). Perhaps the most obvious way that fashion companies use market-skimming pricing is the manner in which the styles of couture clothing are disseminated through the wider culture. At first, new clothing styles from hot designers are shown to the fashion and celebrity elite. Eventually, the style is copied and adopted by mass market fashion outlets.

On a much more modest scale, even consumers who do not follow high-end fashion have observed the market-skimming phenomenon in mall stores such as the Gap. Every season, the store will produce new items, variations on the Gap's classic clothing themes. Consumers, particularly trend-conscious young people, will buy the fashions at the full listed price. Gradually, to reduce inventory, the new clothing styles will be put on sale. Clothing may be a necessity, but fashion is not. Fashion is about what is new and hip.

When a store sells new clothing, it is usually selling fashion, or the allure of having the 'next new thing.' When a consumer buys a very expensive pashmina or pair of Jimmy Choos, he or she is not doing so to keep warm or to walk to work. In fact, these items of clothing are highly impractical. Rather, the consumer is merely communicating a certain image or sense of exclusivity to the world.

Thus, the consumer is willing to pay more, as being able to pay more is part of the attraction of these items. Even when purchasing a new item from the Gap, the wearer shows the he or she knows that v-neck tees or electric blue is 'in' while scoop-neck tees and white is 'out.' 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.