The introduction stage starts when the new product is launched. It takes time to roll out the product in several markets and to fill dealers pipelines, so sales growth is apt to be slow.
In this stage, profits are negative or low because of the low sales and heavy distribution and promotion expenses. Much money is needed to attract distributors and fill the pipeline.
Promotional expenses are at the highest ratio to sales because of the need for a high level of promotional efforts to (i) inform potential consumers of the new and unknown product (ii) include trial of the product and (iii) Secure distribution in retail outlets.
Considering only price and promotion, an organisation can pursue one of the four strategies in introduction stage.
(a) Rapid Skimming (b) slow Skimming (c) Rapid Penetration (d) Slow Penetration
(A) Rapid Skimming: – Consist of launching the new product at a high price in order to recovers as much gross profit per unit as possible. It spends heavily on promotion to convince the market of the products merit even at a high price level. This strategy makes sense under the following assumptions:-
i) a large part of the market is unaware of the product.
ii) those who become aware are eager to have the product and can pay the asking price.
iii) the firm faces the potential competition and wants to build up the brand preference.
B) Slow Skimming:- Strategy consists of launching the new product at a high price and low promotion. The high price helps recover as much gross profit per unit as possible and low level of promotion keeps marketing expenses down. This strategy makes sense when
i) the maket is limited in size.
ii) most of the market is aware of the product.
iii) buyers are willing to pay a high price.
iv) Potential competition is not imminent.
C) Rapid Penetration: Consist of launching the product at a low price and spending heavily on promotion. This strategy promises to bring about the fastest market penetration and the largest market share. This strategy makes sense when
i) the market is large.
ii) the market is unaware of the product.
iii) most buyers are price sensitive.
iv) there is strong potential competition
v) the company’s unit manufacturing experience
D) Slow Penetration Strategy: Consist of launching the new product at a low price and low level of promotion. The low price will encourage rapid product acceptance; and the company keeps its promotion costs down in order to realize more net profit. The company believes that market demand is highly price elastic but minimally promotion elastic. This strategy makes sense when
i) the market is large.
ii) the market is highly aware of the product.
iii) the market is price sensitive and
iv) there is some potential competition.