Price Skimming Research Articles

Supply Chain Decision-Making and Coordination considering Anticipated Regret under Price Discount

The increasing homogeneous product market has made more competition among companies to focus on improving customers’ experience. In order to get more competitive advantages, companies often launch discount products to attract consumers. However, stimulated by discount products, the perception of anticipated regret is becoming stronger, which is an inevitable issue in front of companies with price discount strategy. Considering the impact of anticipated regret for discount products, this paper quantitatively describes the utility functions and deduces the demand functions of original price products and discount products. The theoretical analysis and numerical simulation are used to analyze centralized and decentralized models of supply chain for discount products. On its basis, the revenue-sharing contract is designed to optimize the profits of supply chain. This paper finds that the price of products increases first and then decreases with the increase of regret sensitivity coefficient and consumer heterogeneity. When the regret sensitivity coefficient and consumer heterogeneity are lower, companies in the supply chain can adopt the “skimming pricing” strategy in order to obtain more profits. When the regret sensitivity coefficient and consumer heterogeneity increase, companies in the supply chain can adopt “penetrating pricing” strategies to stimulate market demand. For high regret consumers, manufacturers can adopt a “commitment advertising” strategy to promise price and quality, and retailers can adopt a “prestige pricing” strategy to reduce consumer perception of regret. In response to products with higher differences in consumer acceptance, manufacturers can adopt a “differentiated customization” strategy to meet different types of consumer demand and retailers can adopt a “differential pricing” strategy for precise marketing.

Single stream or dual stream? A game-theoretic approach to the sustainable evolution in waste recycling systems

The rapid development of information and communication technologies has created more opportunities for the channel innovation in residential curbside collection and the technical revolution of material recovery facilities. In waste management, single stream allows the households to bundle the recyclable waste, and dual stream requires the households to separate the recyclable waste individually. However, the sustainable development of the environment has led the government to focus on the transition between two waste recycling systems. In this study, we establish an analytical framework of the sequential game to study the sustainable evolution from single stream to dual stream and from dual stream to single stream. When the households are heterogeneous about the recyclable waste, there is a duopoly price competition in waste management, and two waste recycling systems can sequentially adopt the neutral pricing, penetration pricing and skim pricing strategy. Numerical experiments discuss the impacts of collecting costs and bundling discounts on the sustainable evolution. No matter what the evolution sequence is, two waste recycling systems can set a full or partial bundling discount policy to maximize the profit.

Research on energy efficiency improvement in a supply chain with discontinuous market demand.

In many countries, products are divided into several grades according to their energy efficiencies by the government. It leads to the discontinuous market demand for the products with different governmental energy efficiency certifications and further influences the relevant strategies of firms. Considering both increasing consumer environmental awareness and strict governmental grading standard, this paper develops a Stackelberg differential game between a manufacturer and a retailer. The optimal pricing strategies and the energy efficiency efforts are studied, and the influences of discontinuous market demand on those optimal strategies are discussed. The results show that the governmental grading standard has an important boosting impact on the energy efficiency level of products. When the product's energy efficiency level is lower than the governmental standard, the manufacturer will make great efforts on energy efficiency improvement. It would be beneficial for both the manufacturer and the retailer to use penetration pricing strategy during this period. Once the governmental standard is met, the manufacturer will reduce his effort significantly. At this time, taking the skimming pricing strategy is beneficial for both the manufacturer and the retailer. Moreover, a higher governmental standard and a larger consumers' preference difference can motivate the manufacturer to work harder to improve energy efficiency. They also lead to a higher price after the product is certified as the high energy efficiency product by the government.

Investment in Two-Sided Markets under Technological Uncertainty

This paper examines the effect of technological uncertainty on the optimal pricing and investment decisions in a two-sided market. A platform offers a basic good and a developer offers a complementary good. The performance of the complementary good is stochastic and is endogenously determined by the pricing policy the platform adopts. Heterogeneous consumers join the platform either before uncertainty is resolved or after. In the former case, consumers obtain the basic good and an option to benefit from the complementary good in the future. The platform trades off building an earlier mass of consumer base and extracting profits from late adopters. Consumers are divided into three groups: early adopters, late adopters, and those who never join the platform. A platform's pricing policy depends on the value of the complementary good and the cost of its development. If the cost is small, a price skimming policy is optimal. When the cost is higher, price skimming remains optimal if the value of the complementary good is either small or relatively high. For intermediate values, the platform adopts a price penetration policy. We discuss some examples from the empirical literature in light of the model.

Pricing Strategy for New Products with Presales

An increasing number of firms and retailers use presale strategies to induce customers to purchase before new products enter the market to increase their market share. Presales have gradually become a hot issue in business and academic circles. Based on a skimming pricing strategy and a penetration pricing strategy, this paper uses the different choice behaviors of two types of consumers to investigate the pricing strategy of preselling new products. The results show that if the proportion of fashion consumers is relatively low and their willingness to buy in the spot channel is below the threshold, the retailer should focus on traditional consumers by using a skimming pricing strategy; otherwise, the retailer should switch to a penetration pricing strategy. Moreover, we find that to gain more profits, the retailer should introduce a presale channel using either a penetration pricing or skimming pricing strategy. The introduction of a presale channel may not only reduce inventory risk and cost and enhance the market share and profitability of the enterprise but also help consumers avoid the risk of shortage and enhance their sense of security.

Partial myopia vs. forward-looking behaviors in a dynamic pricing and replenishment model for perishable items

<p style='text-indent:20px;'>This paper studies a dynamic pricing and replenishment problem for perishable items considering the behavior of decision-maker (partially myopic or forward-looking) and the dynamic effects of cumulative sales. A dynamic optimization model is presented to maximize the total profit per unit time and solved on the basis of Pontryagin's maximum principle. The optimal pricing and replenishment strategies for partially myopic and forward-looking scenarios are obtained. By comparing the partially myopic and forward-looking strategies through numerical analysis, we find the main results: First, applying a skimming pricing strategy might be a good choice when the saturation effects are considered. Second, the decreasing rate of product sales, deterioration coefficient, and holding cost of perishable items per unit exhibit impact on the behavioral preference of decision-maker. Under certain conditions, partially myopic behavior can bring more profit than forward-looking behavior. These managerial implications provide useful guidelines for the decision-maker.

Ancillary market signalling: A two-stage model of economic reputation on ancillary market success

ABSTRACT Due to high market search costs, public information can have a stronger impact than private information on consumer choice behaviour. As a result, a priori economic success serves as a signal of high quality, reduces information asymmetries and can thus have an influence on the market performance in ancillary markets. Using weekly sales data from the ancillary DVD market, consisting of 8664 movies and their commercial performance between 2006 and 2018, we empirically test the influence of economic reputation on ancillary market success. We find clear evidence to suggest that former box office and DVD market success is positively associated with DVD sales. We additionally show that for distributors it is rational to follow a price skimming strategy of setting prices high when introducing new products to the market. These results provide practical insights into how businesses can maximize their profits by improving their decisions concerning product launch strategies.

Pricing, Advertising, and Endogenous Consideration of an 'Insistent' Product

This paper theoretically investigates the pricing and advertising decisions of a monopolist that sells to consumers who, in any given period, may or may not consider the (cognitively costly) decision to buy its product. In the proposed model, consumers can be compelled by advertising to consider the buying decision, while a consumer’s likelihood of considering the decision in the absence of advertising depends on past buying decisions. A product is then said to be “insistent” if not buying it (when considered) increases the likelihood of considering the buying decision in the next period, and “noninsistent” if the opposite is true. As one of several differences for marketing such products implied by the model, it is optimal for the firm to use price skimming for an insistent product and penetration pricing for a non-insistent product, through both strategies should be refreshed at the beginning of each advertising cycle. The model also offers a micro-grounded mechanism (in terms of consumers’ forward-looking buying decisions with “endogenous consideration”) for several advertising concepts, such as diminishing returns when repeating an advertisement, greater returns when advertising newer products, advertising pulsing (as an optimal equilibrium strategy), and even the possibility of “wearout.” New implications regarding the use of free samples, anticipation-building (i.e. delayed selling) strategies, and for marketing “worthless” products are also explored.

Durable goods pricing with reference price effects

A price benchmark shaped by consumers on the basis of their perception of past prices is known as a reference price. Behavioral decision research suggests that consumers are likely to be backward-looking in that they make purchase decisions based not only on the current price but also on the reference price. It is evident that the reference price effect, which has significant impact on consumer demand, exists for both consumables and durables. Yet, how this effect works has only been investigated in relation to the pricing of consumables, and thus the corresponding results are unable to yield normative implications for durable goods pricing where the saturation effect must enter the picture. This study aims to provide marketers of durables with relevant insights that can be practically used to guide their design of pricing strategies in the presence of the reference price effect. Specifically, we develop a dynamic pricing model which incorporates both the reference price effect and the saturation effect into a framework to broaden our understanding on the durable goods pricing problem. As the internet technology and social media have enhanced consumers’ ability to recall and compare past prices, the need for such a pricing model with backward-looking consumer behavior is increasingly compelling. Our results indicate that while it is optimal for a myopic seller to adopt the skimming pricing strategy, either the price skimming strategy or the penetration strategy is optimal for a forward-looking seller, contingent on the potential market and consumers’ reference price effects.

MARKETER’S PRICING STRATEGY VS. COMPETITION LAW

Marketers put greater emphasis in pricing strategy during their marketing planning simply because pricing is one of the most important elements of marketing mix that can generate revenue. Formulating of product or service prices is a strategic activity because the price or prices assigned to a product or range of products will create an impact on consumer’s perception towards a company’s products and determine its subsequent purchase. Marketers need to exercise creativity in pricing strategy in order to attract consumer’s positive perceptions and purchase decisions. As a result, various pricing strategies have been introduced for products and services such as value-based pricing, bundle pricing, price skimming, penetration pricing, competitors oriented pricing, and discriminatory pricing to name a few. By applying all these creative pricing strategies, to great extent have enable marketers to compete effectively as well as to win over consumer’s perception in purchase decisions. On one hand, it is an effective strategy for the marketers to succeed in business. But on the other hand it may be unfavourable to the consumers especially when there are unfair trading practices occurred on the pricing strategies implemented. In this situation it is classified as anti-competition and abuse of dominant position. In order to protect both the business-to-business consumers and end consumers, the Malaysian government has implemented the Competition Act 2010 which came into force on 1 January 2012 with the aim to control anti-competition and abuse of dominant position. The Competition Act 2010 is changing the way marketers formulating and implementing their pricing strategies. This is because the Competition Act 2010 has specific clauses in prohibiting enterprises in setting prices by exploiting consumer’s position for their profiteering advantage. Hence, marketers are presently caught in a difficult position when formulating pricing strategy which at the same time has to comply with the Competition Act 2010. To date, limited review has been conducted on marketer’s pricing strategy vis-à -vis competition Act pricing policy. The purpose of this paper is to compare the marketer’s pricing strategy and competition Act pricing policy and to evaluate how the relevant sections of the competition Act impact marketer’s pricing decisions. In the conclusion, non-pricing strategies are recommended to counter the competition Act pricing policy prohibitions.

The interaction between product rollover strategy and pricing scheme

In high-tech and innovative industries, many firms make joint decisions on product rollover strategy and pricing scheme and offer trade-in programs under some circumstances to encourage repeated purchasing. This paper studies the interaction between product rollover strategy and pricing scheme with trade-in program offered, by proposing a two-period model incorporating market heterogeneity and consumers' forward-looking behavior. The results show that for both single rollover and dual rollover, the firm is better off following price skimming when consumers are not strategic enough, and product salvage value is low compared to new product innovation level; otherwise, penetration pricing is preferable. For given pricing scheme, the firm's optimal rollover strategy depends on product innovation level, salvage value, and how strategic the consumers are. Under either rollover strategy, the firm has no incentive to offer the trade-in program under the circumstances when product innovation level is low, product salvage value is extremely low or high, or consumers are not strategic enough.

Demand Curve Estimation of Locally Produced Woody Biomass Products

Abstract. The goal of the Waste-to-Wisdom project is to produce and sell value-added products derived from post-harvest forest residues including wood briquettes, torrefied briquettes, and biochar. The consumer demand for these products (i.e., market size) determines the success of manufacturers especially when the location of production is far away from a population center and the producer is a price taker. Consumers are often scattered and transportation costs from the factory to retail stores lower the net sales revenue at the plant. The objective of this study was to estimate the demand curves and the associated revenue functions of the bioenergy products in five case locations applying a market-based analysis. We first estimated the size of the potential market for the products in each location and then assumed a market penetration rate to estimate consumer demand. This information was used to develop a set of mathematical functions based on deductive logic. Plugging presumable values based on scenario assumptions into the models contributes to the economic feasibility studies. Keywords: Biochar, Forest products marketing, Market penetration rate, Price skimming strategy, Wood briquette.

Apple's disaster: Linking two‐sided markets and strategic delegation

Asymmetric pricing structure and different intergroup network externalities are characteristics of two‐sided markets not captured in the analysis of one‐sided markets. Focusing on Cournot duopoly where membership decision may be delegated to a manager, several equilibrium regimes are sustained depending on the fixed cost of managerial hiring and strength of the network externality exerted by the side whose demand is more price sensitive. The change from null to full delegation sharpens the asymmetric pricing structure and reduces the price level in two‐sided markets. Contrary to one‐sided markets with direct network effects, the prisoner's dilemma holds for sufficiently strong indirect network externalities. Imperfect interside discrimination of managerial incentives ensures profit maximization and efficient consumers' allocation. Private hiring should occur when the two‐sided market exhibits symmetric pricing structure. An explanation for Apple's unprecedented event is provided. The reduction of revenue and managerial bonus in 2016 may be justified by the dissemination of full delegation in the Chinese information technology industry. Apple's upcoming strategy may consist on reducing both access prices, although the side whose demand is more price sensitive should have a greater price reduction. Alternatively, improving the content quality may constitute Apple's corporate strategy, thereby inducing a skimming pricing strategy on Chinese rivals.

Applicated pricing strategies in Jordanian medicine scoter and there effects on customer satisfaction (view point of mangers)

The aims of study to know the " applicated pricing strategies in Jordanian medicine sector and there effects on customer satisfaction " according to the perspective of the market medicine , pricing , satisfaction and its importance , it focus on a problems faced by prices , customer income , quality , performance of medicine sector .The study showed pricing strategies and there obstacles to achieve customer satisfaction and how to choose the suitable strategy for pricing the medicines and for test the relation between price and satisfaction.The medicine sector face obstacles’ as working capital , cost ,patent regulations’ , laws , customer satisfaction , a suitable strategy and policies to achieve medicine sector objectives ,there are three dimensions’ for independent factors(skimming strategy ,penetration strategy, expected value strategy )and customer satisfaction .The study population is consist of all companies in medicine sector (106) company in survey and analytical study , view point of managers ,concluded that rapid skimming pricing strategy depend on the importance of medicine product but low skimming pricing strategy depend on promotion effort , rapid penetration pricing strategy depend on low price as an entrance for the medicine market.The study showed that :The prices were very high , the market share is low , the customer satisfaction is low the sector, improvement is costly .The study recommended the Jordanian medicine sector must be combining to meet low customer satisfaction by focus on quality , low prices , increase market share , improvement the sector , decrease the cost , reinforce t the competition abilities’

AN ANALYSIS OF THE EFFECT OF PRICING STRATEGIES ON PROFITABILITY OF INSURANCE FIRMS IN KENYA

Purpose: The objectives of the study were to establish the effect of economy, skimming, penetration and premium pricing strategies on the profitability of insurance firms in Kenya.Methodology:The descriptive research design was preferred to other research designs because it reports the status of study variables. The population of study was the 45 insurance companies operating in Kenya as at 31st December 2012. Data was drawn from a period of five (5) years that is 2008-2012. The sample of this study was 10% of the sales workforce which comprised of 900 employees from the 45 insurance companies. The sample was generated by purposively sampling two employees from each insurance company.The researcher collected primary data with the help of a questionnaire. The primary data obtained from the questionnaires was summarized and analyzed by use of descriptive and inferential statistical techniques.Results:Regression and correlation results indicated that there was a statistically significant and positive relationship between economy pricing, skimming pricing, penetration pricing, premium pricing, price optimization strategies, strategies and profitability. Results show that economy pricing, skimming pricing, penetration pricing, premium pricing, price optimization strategies have a positive effect on the profitability of insurance companies. The correlation between profitability and penetration, premium and price optimization strategies was strong and positive. The regression results indicate that the variables; economy pricing, penetration pricing, premium pricing, price optimization strategy and skimming pricing were satisfactorily explaining profitability.Policy recommendation: The study recommends that insurance companies put in place measures assess the most effective pricing strategy to reduce product costs and thus increase profitability whenever such a strategy is used.

EFFECT OF SKIMMING PRICING STRATEGY ON THE PROFITABILITY OF INSURANCE FIRMS IN KENYA

Purpose: The objectives of the study were to establish the effect of skimming pricing strategy on the profitability of insurance firms in Kenya.Methodology:The descriptive research design was preferred to other research designs because it reports the status of study variables. The population of study was the 45 insurance companies operating in Kenya as at 31st December 2012. Data was drawn from a period of five (5) years that is 2008-2012. The sample of this study was 10% of the sales workforce which comprised of 900 employees from the 45 insurance companies. The sample was generated by purposively sampling two employees from each insurance company.The researcher collected primary data with the help of a questionnaire. The primary data obtained from the questionnaires was summarized and analyzed by use of descriptive and inferential statistical techniques.Results:Regression and correlation results indicated that there was a statistically significant and positive relationship between skimming pricing strategies and profitability.Policy recommendation: The study recommends that insurance companies put in place measures assess the most effective pricing strategy to reduce product costs and thus increase profitability whenever such a strategy is used.

Software dynamic pricing by an optimization deterministic model in a monopolistic market

AbstractThis paper develops an optimization model for pricing a monopolistic application software in the presence of piracy. The purpose is raising revenue produced by product’s sale with determining prices in a price skimming strategy and minimizing amount of piracy. The model is a multifunctional price skimming optimization with simplex method which accompanied by a deterministic method for calculating time intervals of each segment. A linear function is used to describe demand of each segment. In addition, a linear piracy function is proposed to make piracy a dynamic parameter. The model has the ability to apply penetration pricing and controlling market share. Rough estimates of Windows 7 sale’s parameters are used to apply in the model. Optimizing case of Windows 7 is resulted in 7.3 percent increase in revenue while value of net market share is virtually constant. Therefore, the developed model demonstrates its competence in optimizing revenue by determining prices with presence of piracy. Results o...

Dynamic lot-sizing models with pricing for new products

While previous dynamic lot-sizing (DLS) models mainly consider mature products, this study analyzes production planning decisions for new products. The demand dynamics caused by new product diffusion complicate production decisions for new products. We integrate DLS and discrete Bass models to provide optimal decisions for pricing and production planning problems. Moreover, we study the joint influence of product diffusion and pricing parameters on the DLS decisions. This leads to the following insights. First, coordinated production-pricing and dynamic pricing improve profitability. Second, the optimal pricing strategy is affected by market conditions. The penetration pricing strategy outperforms the skimming pricing strategy when consumers are less sensitive to relative price changes than to the introductory price, when the product diffuses slowly, or when the consumer initiative level is low. Otherwise, the latter outperforms the former. Finally, pricing strategies and product diffusion patterns reshape the cost structure of a firm. Coordinated decisions and dynamic pricing strategy substantially reduce the cost-revenue ratio, whereas an increase in the consumer initiative level or product diffusion speed can improve cost efficiency.

Technical Note—Dynamic Pricing with Gain-Seeking Reference Price Effects

We study a dynamic pricing problem of a firm facing reference price effects at an aggregate demand level, where demand is more sensitive to gains than losses. We find that even the myopic pricing strategy belongs to one type of discontinuous maps, which can exhibit complex dynamics over time. Our numerical examples show that, in general, the optimal pricing strategies may not admit any simple characterizations and the resulting reference price/price dynamics can be very complicated. We then show for a special case that a cyclic skimming pricing strategy is optimal, and we provide conditions to guarantee the optimality of high-low pricing strategies.

Understanding the price drivers of successful apps in the mobile app market

In this paper, we take the perspective of app developers. Specifically, based on a sample of top paid apps from three major app stores, i.e., App Store, Google Play, and Blackberry World, we construct a hedonic price model to examine the role of relevant factors in price formation in the app market. Our results suggest a strong evidence of two-sided market effects. In fact, the lower price charged for apps operating as two-sided markets reflect the strategy of subsidising users, due to the positive cross-side externalities they exert on valuable third parties. Surprisingly, the effects of trialability, in-app purchase and mechanisms to build reputation are not significant in the context of successful apps. Finally, we find weak evidence that developers of top paid apps prefer price skimming to penetration price strategies.