236 CHAPTER 9 PRICINGTHEPRODUCT
would likelydobettertobuyaninexpensivecomputerandsignupfor
a $ l O-a-monthlimited-accessaccountwitha serviceprovider.
Peoplewhou s ethe Internetalotmayalsobepoorcandidates.
That'sbecausethreeyear sisalong commitmentatatimewhen
Internet a cces s technologyischangingrapidly. Heavyusersarelikely
t obetheearliestadopters ofhigh-speedcableordigitalsubscr .ber
lines ervicea s itbecomesavailableintheirareas.
Sources:S tephenH.Weldstrom."TheHighCostofFreePCs."BusinessWeek,
September 13 , 1999.p. 20 ;StevenBruel."WhyTalk'sCheap,"BusinessWeek,
Septeber 13 .1999,p p.34-36;MercedesM.CardonaandJackNeff,"Every-
thing'sataPremium,"AdvertisingAge,August2.1999,pp. 12 - 13.
Which strategy is bestdependsona numberof factors. Apenetration strategywould
generaJlybe supportedby thefollowing conditions:price-sensitive consumers, opportunity
tokeepcosts l ow,the anticipationofquickmarketentry bycompetitors, a highli kelihood
forrapidacceptance by potentialbuyers, an danadequateresourcebasefo r thefirmtomeet
thenewdemand andsa les.
Askimmingstrategyis mostappropriate whentheoppositeconditionsexist.Apre-
miumproductgenerallysu pports a skimmingstrategy.Inthiscase,"premium" doesn' t just
denotehighcostofproductionandmaterials; it alsosuggests thattheproduct mayberare
or t hatthedemandisunusuallyhigh. An examplewouldbea$500ticketfortheWorld
Series oran$80,000pricetagfor a limited-productionsp ortscar.Havinglegalprotection
via a patent orcopyright may alsoallowforanexcessivelyhighprice. Intelandtheir Pen-
tiumchippossessed th is advan tage fora longperiodoftime.I n mostcases , theinitial high
priceisgraduallyreduced tomatchnewcompetition andallownev.'customersaccessto
theproduct.
Skimming
Price
·c
::J
~ Penetration1-- - --+-- --- --"'-
CD Price
.g
D...
Skimming Penetration
Quantitydemandedina givenperiodof time(#ofunit)
Skimminggeneratesa higherprofit marginwhile penetrationgenerates
greatervolume.
FIGURE9.3 Penetrationandskir.lming:pricingsti·ategiesasthe\' relatetot hedemand
curve
