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There are two new product pricing strategies:

1. Market-Skimming Strategy- This is when companies introduce a new product at a high opening price and then gradually lower the price over time to attract the next and future layers of market consumers (Armstrong, G. & Kotler, P. 2019). Usually, the consumers that purchase the product initially are the ones with the means and desire for the product and have no problem with paying the premium price.

An example of this type of strategy would be the game console industry. When Xbox, Nintendo, or PlayStation announce the release of a new console, the price is insanely high and overpriced. Then after a few months, the price comes down, they have huge sales around Black Friday, and the price drops even more when a newer version comes out.

Challenges for companies using this strategy: The quality of a companys product must back up the reason for the high price and there must be enough buyers that do not want to wait for a sale and are willing to pay that price (Armstrong, G. & Kotler, P. 2019). If the quality of the product does not back up the reason for the price, people are not going to buy the product. Also, the cost of producing a smaller volume of product cant be so elevated that it terminates the benefit of the higher charges and finally, the competition must be low for this to work in the favor of the producing company (Armstrong, G. & Kotler, P. 2019).

2. Market-Penetrating Strategy-This is when companies set a low initial price to penetrate the market quickly and attract a larger demographic of consumers in the hopes of drawing them away from the competition. (Armstrong, G. & Kotler, P. 2019).

An example of this type of strategy is Netflix. Years ago, when Netflix first came out, it was an easy, affordable way for consumers to watch their favorite movies without late fees and having to go to the video store. As the years passed, Netflix evolved into a subscription-based company where we now get hundreds of movies and shows to watch with the same added benefits of no late fees and never having to leave the comfort of our home to go get another movie to watch. The price for a subscription has gone up over the years but not where it is unaffordable and despite the complaints from many consumers, many of us continue to pay Netflixs asking price to continue watching our favorite shows on their platform.

Challenges for companies using this strategy: The prices need to stay low for consumers to stick with their products. If the price gradually goes us, consumers may become dissatisfied with the price and stop buying the product. Also, the cost of producing and distributing the product must be lower than what the product is selling for, or the company will suffer a loss which may lead to lower profits (Armstrong, G. & Kotler, P. 2019). Lastly, this strategy can saturate the market and lower prices throughout the entire industry. Competitors can sell a similar product at rock bottom prices as well making it difficult for any one of the sellers to show a true profit.