Skimming or Penetration? Strategic Dynamic Pricing for New Products

The literature provides some stylized guidelines for choosing between skimming and penetration pricing for new products in simple competitive scenarios. However, these guidelines do not resolve the practical dynamic pricing problem in the current complex dynamic environments, characterized by numerous brands, each with multiple products and price points, and differentiated on a variety of product features. This study develops a structural pricing model to empirically ascertain the practice and profit implications of these alternate strategies in such complex environments. The authors apply the model to dynamic pricing over four years in one digital camera market, containing 663 cameras under 79 brand names, in one major European country. They analyze the adoption of different pricing strategies at the firm level, the factors associated with strategy choice, and the profitability of pricing strategies at the camera and firm level. The major finding is that a skimming strategy is more profitable than a penetration strategy at the camera level. However, a strategy mix appears to be preferable at the portfolio level after taking into account demand and cost interdependencies between products.