Skimming or penetration: optimal pricing of new fashion products in the presence of strategic consumers
- 1.4k Downloads
Pricing for new products is usually a difficult task for a firm, for there always exists uncertainty of consumers’ valuation with respect to the new products. Moreover, the presence of strategic consumers even complicates the situation, due to their inter-temporal purchase choice behavior and their uncertain proportion in the whole demand pool. In this paper, facing the twofold uncertainty, we develop a stylized model to study the optimal pricing for new fashion products in the presence of strategic consumers. The optimal pricing strategy for the firm and the optimal purchase timing for strategic consumers are obtained; a framework is also built to investigate the expected value of demand information. Through numerical studies, we find that the price skimming strategy dominates the penetration strategy only when the firm’s discount factor is large enough, consumers’ strategic purchasing behavior diminishes the firm’s ability to adopt skim pricing, and the revealing strategy is most valuable when the firm is (almost) indifferent between skimming and penetration. In addition, some other managerial insights are also derived.
KeywordsPricing New products Skimming Penetration Strategic consumers
The authors would like to thank the editor and the reviewers for the helpful comments. This work is supported by National Nature Science Foundation of China under Grant 71172071 and 61403213, and the Specialized Research Fund for the Doctoral Program of Higher Education, China (No. 20120031110036).
- Cho, M., Fan, M., & Zhou, Y. (2009). Strategic consumer response to dynamic pricing of perishable products. In C. S. Tang & S. Netessine (Eds.), Consumer-driven Demand and operations management models: A systematic study of information-technology-enabled sales mechanisms (pp. 435–458). New York: Springer.CrossRefGoogle Scholar
- Spann, M., Fischer, M., & Tellis, G. J. (2009). Skimming or penetration? strategic dynamic pricing for new products. http://www.business.ualberta.ca/Departments/MBEL/MarketingSeminars/~/media/business/Departments/MBEL/Documents/MarketingSeminars/2008-09/StrategicDynamicPricingPaper.ashx. Accessed on April 21, 2014.