I have a friendly piece of advice for those who create their own marketing and to those who sponsor it. Often, the ad that generates record-breaking volume for a business one month is repeated the following month and fails.

A campaign designed by the best ad professionals may elicit a mediocre response, yet, the same item skyrockets in sales after a 20-word classified ad with abominable grammar appears on the rear pages of a shopper magazine. It’s rolled up and tossed to homes during a rainstorm! The mystery eludes solution but demands attention.

If we look a little closer at our current economic issue, it seems corporate strength was built on price skimming. This refers to the practice of charging high prices for the purpose of maximizing profit in the short run.

It only works best when the product is unique and people are willing to pay extra just to have it. There are trend setters in society who always are looking for something new and are willing to pay the price. A larger number are followers. They will buy your product if it is accepted by the leaders. The followers however, will not pay the higher price.

It only works when the cost of development is high and there is a chance of early obsolescence or imitation by competitors. Or, you may have a strong patent position, or your product would be difficult to copy.

The real disadvantage of skimming is that it attracts competition. Your competitors will soon figure out what you are up to, and the high profit potential will encourage them to copy you. They may produce cheaper versions of your product or style, referred to as knockoffs in the market.

Once you have meaningful competition on price, your skimming days are over and you run the risk of ending up with an enormous stock of products that cannot be sold at any price. Sound familiar?

The solution is penetration pricing. This is the opposite of skimming. It is made to introduce your product at such a low price that you will quickly gain a large share of the market. The purpose is to discourage competition. However, eventually you will have to raise your prices to start making some profit, and when you do, you will learn much about customer loyalty!

No related posts found.