Marketers generally four approaches when it comes to pricing. This includes:
The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by Foxtel.
Foxtel wanted to grab large numbers of consumers to make it financially viable. After they gained a large enough audience, they started pricing their premium packages at their higher pay rate, so they could move from a penetration approach to a premium or skimming pricing model.
The costs of marketing and promoting a product are kept to a minimum. Supermarkets often have economy brands for soups, spaghetti, etc. Budget airlines are famous for keeping their overheads as low as possible and then giving the consumer a relatively lower price to fill an aircraft. During times of recession, economy pricing sees more sales.
Price skimming sees a company charge a higher price because it has a substantial competitive advantage. However, the advantage tends not to be sustainable. The high price attracts new competitors into the market, and the price inevitably falls due to increased supply.
Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market, the watches were produced at a lower unit cost, other marketing strategies and pricing approaches were implemented. New products were developed and the market for watches gained a reputation for innovation.
This approach is used where a substantial competitive advantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price. Such high prices are charged for luxuries, such as Chanel and first-class air travel.