Pricing a Product

Once a business has a product to sell, the next consideration is how to price the product. The business wants to price the product high enough to make a profit, but not so high that a typical customer wouldn't buy it. Read this section to learn about various pricing strategies.

When Robosapien was introduced into the market, it had little direct competition in its product category. True, there were some "toy" robots available, but they were not nearly as sophisticated. Sony offered a pet dog robot called Aibo, but its price tag of $1,800 was really high. Even higher up the price-point scale was the $3,600 iRobi robot made by the Korean company Yujin Robotics to entertain kids and even teach them foreign languages. Parents could also monitor kids' interactions with the robot through its own video-camera eyes; in fact, they could even use the robot itself to relay video messages telling kids to shut it off and go to sleep.

Skimming and Penetration Pricing

Because Wow Wee was introducing an innovative product in an emerging market with few direct competitors, it considered one of two pricing strategies:

  1. With skimming pricing, Wow Wee would start off with the highest price that keenly interested customers would pay. This approach would generate early profits, but when competition enters – and it will, because healthy profits can be made in the market – Wow Wee would have to lower its price.
  2. Using penetration pricing, Wow Wee would initially charge a low price, both to discourage competition and to grab a sizable share of the market. This strategy might give the company some competitive breathing room (potential competitors won't be attracted to low prices and modest profits). Over time, as its growing market discourages competition, Wow Wee could push up its prices.