By Oluwole Dada
We have examined two of the most common killers of new products in this series and these are the cultural and taste mismatch that condemns a product from the moment the consumer encounters it, and the cost of production spiral that makes it economically indefensible to keep the product alive. Both failure modes share a common characteristic: by the time they fully manifest, a great deal of organisational resource has already been committed, and the cost of reversal is high.
Today’s failure factor does not require sophisticated analysis to avoid. This is because it is a decision that is made, deliberately and explicitly, before a single unit of the product reaches a shelf. Specifically, we are talking about what happens when an organisation gets the price wrong. Price is not simply a number on a label. It is a strategic communication. It tells the consumer who this product is for, what kind of value it represents, and whether they should invest their limited purchasing power in trying it. Get that communication right and price becomes a competitive weapon. Get it wrong and price becomes the first and sometimes the only reason a consumer decides to walk past your product and pick up the one beside it.
There are different pricing strategies and the one that is to be deployed will be determined by several variables that will be examined in this series. The first is market skimming. This is the strategy of entering the market at a deliberately high price, targeting the segment of consumers for whom the product’s premium positioning is justified. The assumption behind market skimming is that a certain portion of the market will pay more to be among the first to access a superior product and that the organisation can later reduce the price in stages to capture successive layers of the market as the initial premium segment is saturated.
The strategy works best when the product has a genuinely differentiated offering that the consumer perceives as worth the price premium, and when the brand has sufficient equity to carry the premium positioning credibly. Apple is the most cited global practitioner of market skimming. Every new iPhone generation launches at a price point that is significantly above the mass market median, targeting early adopters and brand loyalists willing to pay for first access to new features. Over time, as newer models launch, the prices of previous generations decline, capturing progressively more price-sensitive consumer segments. The strategy works for Apple because the brand’s perceived premium is real and consistent.
In Nigeria, when the Mobile Network Operators launched their services in 2001, MTN and Econet adopted the price skimming strategy. The sale of a SIM card in 2001 was N20,000 ($180) at that time. Call rate was N50 ($0.45) per minute. This was a deliberate premium price skimming strategy under duopoly. The elasticity broke with the entrance of a competitor. Glo, the first indigenous telecoms company entered in 2003 with free SIMs and per-second billing. The existing MNOs had no alternative than to respond to the competition’s price. This is called competitive pricing. It is pricing strategy deployed in response to a competitor’s aggressive pricing. What Glo deployed is called penetration pricing.
Penetration pricing is a low introductory price designed to drive rapid trial, build volume, and capture market share quickly. If Glo had used price skimming as its strategy, they would have failed because there were existing players with strong brand value and market dominance. If MTN had not responded to Glo’s aggressive penetration price, they would have lost a deal of market share to Glo. The assumption behind penetration pricing is that volume is more valuable at this stage than margin, and that the consumer base built at the penetration price will eventually support a gradual price increase as the brand builds equity.
Xiaomi’s entry into multiple African markets with smartphones priced significantly below the established competition is one of the most effective recent examples of penetration pricing executed with discipline. By entering at a price point that the mass market consumer could access, Xiaomi built volume and distribution depth before the established players had fully registered the threat. By the time competitors adjusted their pricing response, Xiaomi had earned sufficient consumer loyalty and retail preference to defend its position. The penetration price was not a reflection of a cheap product. It was a deliberate strategic choice to prioritise market entry over immediate margin.
Any pricing strategy can work. None is universally superior. The failure begins when an organisation applies one framework without the conditions that make it viable, or when it prices without reference to any coherent strategic framework at all.
Oluwole Dada is the General Manager at SecureID Limited, Africa’s largest smart card manufacturing plant in Lagos, Nigeria.
