Pricing Strategy

Pricing Strategy

Penetration or Skimming Strategy

The pricing strategy for Hot Potatoe products should be based on demand, as well as on costs.

We have determined that the value to the consumer is in offering a healthier fast food option that

meets dietary guidelines and satisfies the consumer’s needs for convenience and satiety. Perceived

value to the consumer, competitor pricing and costs are all factors that should determine price

(California Institute of Technology, 2008). As a new entrant into the fast food market, Hot Potatoe is

introducing an entirely new food concept. Consumers will be hesitant to switch, so penetration pricing

that encourages them to do so is a suitable approach. However, competitors may react by offering a

similar product at the same or lower price. Fast food chains that already have a large market share in

the fast food industry may be able to offer replacement products at an even lower price, relying on

existing supply chains and customer loyalty to choose their products over those of Hot Potatoe.

Therefore, pricing should take and intermediate approach, that falls somewhere between

penetration and skimming strategy. While skimming is commonly used in introducing new and

innovative products, penetration pricing is used to gain market share. The offerings of hot baked

potatoes with healthy toppings that make it more like a satisfying meal should not be considered snack

or value items. If a strictly penetration pricing strategy is used, consumers may perceive Hot Potatoe as

merely offering snack items. Panera bread, which is categorized somewhere between a fast food

establishment and a casual dining place, has been able to maintain market share through tough

economic times, by maintaining its price structure, while offerings new products and improving quality

of its products (Kraus, 2009). Hot Potatoe does not have an existing customer base, but does have a

product...