Insanely beautiful marketing skimming strategy for D2C Brands

Let's go back to simple marketing principles or 4P's of Marketing:

1. Product
2. Price
3. Place
4. Promotion

You might have been taught this in your marketing schools or in your common. These 4 traits are the most discussed. You will discuss about product to launch or products in market, maybe how they launched, promotion strategy they used and finally maybe the price. Willingness to pay is one of the most critical parameters for the success of any brand or startup.

Let's assume you are modern age startup or D2C Brand who is going to launch any product in the market. For simplicity, lets consider you have checked the following correctly:

1. Brand Name, logo and brand aesthetics
2. Product quality, design and packaging
3. Brand Packaging
4. Marketing communications for the launch
5. Product has decent market demand
6. Social channels are ready for launch
7. Customer experience teams in place

but the most critical of all is the "Price"

For India, which is very price sensitive market, you have to be extra cautious about the pricing of your products.

But this is the most important thing which you have to decide.

For sake of simplicity, lets assume you are launching say "Smart Watches"

Now, if you are into E-commerce or online selling, then the most obvious pricing strategy which is followed is as follows:

If competitor brand is selling Product A at price 1500 then everyone will advise you to sell the product at say INR 1400/- or maybe at INR1000/-

Frequent logic or rationale you will get will have following components:

• Sell at lower price to get more sales initially
• Get more reviews initially as amazon or marketplace algorithms favor more reviews

"Bhai India main koi itna paisa ni kharchne wala, wo brand lega na" sasta bech ...Sell cheaper

You may also hear some advice like these

"Apple thode hi hai ki duniya, itna mahnga legi"

or maybe something like this

"Quality wagrah koi nahi dekhta, aj kal dunia ko sasta chahiy, Use kro aur faik do"

Inadvertently people will tend to advice you more and more to sell on lower price to garner reviews, more sales, better sell through etc.

This kind of strategy which everyone talks and focuses is "Penetration Pricing" strategy.

But let me walk you through one more marketing concept.

This is one of marketing tactics which lot of brands follow and is very much relevant even today.

This strategy is Market Skimming Strategy

What is Market Skimming or Price Skimming Strategy ?

Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment of the population.

The skimming strategy gets its name from "skimming" successive layers of cream, or customer segments, as prices are lowered over time.

{Image credits- Corporate Finance Institute}

Market skimmng strategy means you launch superiror quality product to at a higher price where competition is not there. Then eventually you will keep on reducing your price to cater more segments of the users.

So what are the key benefits of this strategy?

Well, it has following benefits:

1. Hedonic Value- It is often assumed that since product is priced higher, it is of high quality. And, if you carve out product which is actually has better quality then it can satisfy hedonic value of the users i.e. perceived value of the satisfaction.
2. Recovery of costs- As you are selling initital lots at higher prices, so you are bound to make recover your costs at much faster rate.
3. Segmentation of Market- Price skimming is an effective way to segment your customer base, potentially allowing you to earn the greatest possible profits from different types of customers as you reduce the price
4. Early adopters to test your products- Status conscious consumers can provide valuable feedback for your products. This can help you to refine your product in future production batches. Early adopters which are status concsious consumers will automatically become your brand evangelists. These brand evangelists will automatically become free Mini-influencers for your products.

Now, you understand why I love market skimming strategy so much. Positive cash flows which you can generate in short span of time can give you muscles to market your future products.

But this strategy needs very careful execution as you are trying to elevate existing consumers to try something new & better and at a very high price.

There are some other disadanatages which needsto this strategy as well. They are as follows:

1. Demand Elasticity- If your products are competing in a market where demand supply demand curve is elastic then it will be difficult for you to execute this strategy. Simply, it means if you reduce price and demand increases and vice versa, then it is difficult to execute it. So make thorough study of the market.
2. Detterance- It simply means if your product can't justify the high pricing then your D2C Story is dead before it begun. So be extra cautios.
3. Limited Sales Volume- You should have integrated marketing approach to actually justify the product & pricing else you may end up with fewer then expected units of sales.
4. Not viable as long term strategy- This ideally should be used with new launches of innovative products which can enhance user experience. Eventually, competitors willl come to your segment so focus on immediate sales of new launches

Despite the some of the disadvantages of this strategy, I still believe market skimming strategy is an insanely beautiful marketing strategy which is less explored.

This strategy especially complements categories like electronics where is continuous innovation or lifestyle products where you can roll out smallar batches of new designs & products.

Also, if you focus more on your D2C Brand store to use this strategy to launch more products then you are bound to get early adopters and loyal customers. These customers can help you to churn out better revenues in the future.

Do remember, D2C Brands is all about experience. If you feel your products and overall supply chain can enhance user experience then definitely try this strategy.

If you want to try out this strategy, book your D2C Brands or Startup consulation or simply send me DM.