Step 4: Set launch strategy
The final step of the PLUS-Pricing Assessment will set the launch pricing strategy. Based on the qualitative and quantitative insights gained in the first three steps, the innovating company can select between four possible options [Chart 2]:
- Premium pricing: In case of a substantial competitive advantage with unique characteristics, a premium price can be charged to reap-off the pioneer-profit and build up a strong brand which will allow the innovation to be protected against later replicates as done with the iPhone flagship model which is following a premium price strategy until being replaced by a newer model
- Skimming: Sequentially pricing the innovation, charging a premium price at product launch to take advantage of the higher willingness-to-pay of early movers, to afterwards reduce the price in order to capture the lower willingness-to-pay of the large masses and gain market share as is commonly done with video game consoles
- Penetration: A pricing strategy for products where the competitive advantages are hard to explain. This strategy is particularly useful to initiate word of mouth and attract customers away from competitors, allowing for later price increases and building on customer loyalty as was done by Samsung when entering the smartphone market
- Discount: In absence of competitive advantages, rapid market share can be gained by pricing the product below the competition, targeting the price sensitive customers. This strategy is particularly interesting for firms where the cost of production declines sharply due to economies of scale or a learning-curve effect as volume expands. An example is Xiaomi’s TV becoming the best-selling flat-screen model in China’s e-commerce market by being offered cheaper than the competition.