Differences between Price Skimming and Penetration Pricing Vinish Parikh May 17, Price skimming and penetration pricing both are pricing strategies used by companies when they launch a new product in the market; however both strategies are different from each other. An example of price skimming would be mobile, laptops and other technological things which when newly launched are sold at higher prices and as time passes price of these products tend to decline.
Share on Facebook If your business is planning to launch a new product, penetration pricing and price skimming are two marketing strategies you should consider.
Each strategy has benefits and disadvantages, so research your target market carefully beforehand to determine what approach will work best for your company.
Penetration Pricing Penetration pricing occurs when a company launches a low-priced product with the goal of securing market share. For example, a sponge manufacturer might use a penetration pricing strategy to lure customers from current competitors and to discourage new competitors from entering the industry.
Gitman and Carl McDaniel. To properly execute a penetration-pricing strategy, the sponge manufacturer first must gear up for mass production and then launch a sizable advertising campaign to publicize its new low-priced sponge.
Both steps are expensive, so penetration-pricing strategies might not work well for small businesses. Price Skimming A price skimming strategy focuses on maximizing profits by charging a high price for early adopters of a new product, then gradually lowering the price to attract thriftier consumers.
When sales to that group slow or competitors emerge, the company progressively lowers its price, skimming each layer of the market until the low price wins over even frugal buyers. It can create an aura of prestige around your product.
If the initial price is too high, you can lower it easily. Finally, late adopters might be pleased to get your prestigious product at a bargain price, which creates goodwill for your company.
A major disadvantage, however, is that large profits attract competitors, so this price strategy only works well for businesses that have a significant competitive advantage, such as proprietary technology.
References The Future of Business: The Essentials; Lawrence J. About the Author Stan Mack is a business writer specializing in finance, business ethics and human resources. Mack studied philosophy and economics at the University of Memphis.Market-Penetration Pricing – New Product Pricing.
The opposite new product pricing strategy of price skimming is market-penetration pricing. Instead of setting a high initial price to skim off each segment, market-penetration pricing refers to setting a low price for .
Jun 26, · Penetration pricing and price skimming are marketing strategies commonly implemented when companies launch new products or services.
Penetration Pricing 1. Price Skimming: Under this strategy a high introductory price is charged for an innovative product and later on the price is reduced when more marketers enter the market with same type of product for example, Sony, Philips [ ].
What is the difference between price skimming and penetration pricing and when from MKT at The University of Oklahoma. What is the difference between price skimming and penetration pricing, Skimming pricing is an effective strategy 71%(7).
For example, a sponge manufacturer might use a penetration pricing strategy to lure customers from current competitors and to discourage new competitors from entering the industry. If the sponge’s price is low enough, consumers will flock to the new product.
In price skimming strategy the company sets higher price for product when product is newly launched and then gradually decrease the price whereas under penetration pricing strategy the company sets lower price initially and then gradually increase the price of product.