McDonald's: Pricing Strategy for a New Product

Topics: Marketing, Pricing, Food Pages: 3 (1144 words) Published: January 27, 2013
The pricing strategy for a new product should be developed so that the desired impact on the market is achieved while the emergence of competition is discouraged. Two basic strategies that may be used in pricing a new product are skimming pricing and penetration pricing. Skimming pricing is the strategy of charging a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price eventually falls due to increased supply. A skimming strategy may be recommended when the nature of demand is uncertain, when a company has spent large sums of money on research and development for a new product, when the competition is expected to develop and market a similar product in the near future, or when the product is so innovative that the market is expected to mature very slowly (Unknown, 2011, para 2). A penetration pricing strategy is one in which a low initial price is set. Often, many competitive products are already in the market. The goal is to get as much of the market as possible to try the product. Penetration pricing is used on many new food products (Unknown, 2011, para 4). When McDonald’s first began to break into the coffee market, they ran a large marketing campaign in order to gain some market share in the industry. For a limited time frame, you could get a free small coffee every morning from 4-7 a.m. This was to promote their new coffee and help spread the word that McDoanld’s was now offering coffee. The Carrot-Orange Shake will continue with McDonald’s penetration pricing strategy, allowing consumers the opportunity to try the product and recognize its nutritional value. In addition to understanding the market, the potential buyer and cost, it is also important to understand competitors pricing strategies. Value pricing is when businesses offer a fairly high quality product at a relatively low price. The value has to...
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