The Three - and only three - Pricing Strategies
There are only three pricing strategies: Skim, penetration and neutral. Price can be an effective way to compete for some companies. Think of Wal-Mart, Southwest Airlines, Costco, Dell Computers, or Timex watches, all use a penetration pricing strategy. All of these companies have used price as an effective competitive differentiation and have relentlessly driven out needless costs from their operations, passing the savings on to its customers. On the opposite side of the spectrum there is Apple, BMW, Bose, Disney, FedEx, Godiva, Gucci, Lexus, and Nordstrom, all of which command premium prices: a skim pricing strategy. In the middle are companies such as, Buick, Seiko watches, Sony, and Toyota, where price places a more neutral role. Far more consideration should be given to which of the three generic pricing strategies will guide a firm’s pricing. Ed and Ron will examine them to gain an understanding of which strategy is appropriate given the realities of the marketplace.