Is penetration pricing a lost art?

Maybe this one is a little more of a personal gripe and it doesn't happen to everyone, but in my world, it's something that's bugging me, so I'm going to write about it.

Any marketing text will tell you that there are two primary strategies when introducing a new product, penetration pricing and prestige pricing. Each of these has its place. For prestige pricing, a company needs to have an established brand, a loyal fan base, and a true differentiator of a product. The best example of this is Apple with the iPhone. They launched the thing at $400-$500 a pop and were selling out of them left and right. They were the most expensive phone and people paid. Since then, the price has come down as the masses have joined the early adopters. This is classic prestige pricing.

On the flip side is penetration pricing. This tends to be used by companies that are introducing more of a "me-too" type product, or ones that don't have quite the established brand. It's designed to quickly take market share away and validate your product. The early purcahsers get a "deal" because they assume the risk of a new company or new product when the established players already have something. Then as they validate, the price creeps up as more customers are willing to give it a try (actually in today's markets this seems to be more that the new player sets the new price and others come down, but...). You tend to see this played out in the auto industry.

Now, my gripe. If you are introducing a me-too product, you better have one helluva brand reputation if you are going to use prestige pricing. And if you don't have that brand reputation, don't expect to get premium pricing! If there is a company that has 6,000 pieces of equipment installed, and you are trying to get your first, why would anyone pay more?

By demanding a higher price for a me-too product, validation is delayed, the competition has more time to build a story against you, and the sales team feels an incredible amount of pressure. It usually ends in deep discounting, one off price reductions, and totally erratic behavior (at least in my cases).

Overall, it seems that there are many more examples of prestige pricing than penetration pricing. Sometimes prestige works, sometimes it doesn't, but it seems to be the preferred method (of course I could be in a bubble that doesn't see pricing in the rest of the industries throughout the world).

I could go on and on about pricing and theory and execution, but if you are still reading this, I don't want to bore you any further. I'll wait for another post where I can look at pricing with regards to the technology adoption curve. Then there is the whole market pricing vs. "I just need to cover my costs, market be damned" pricing argument. Or the one-of-a-kind pricing phenomenon.

But in the end, just remember, have you earned the right to prestigously price your product, or would it be better to gain users quickly to help validate?