Explain market skimming and market penetration pricing strategies

Examples of skimming and penetration pricing

Also, the costs of producing smaller must not be so high that they overshadow the advantage of charging more. Emphasis on Growth Penetration pricing is intended to attract a larger contingent of customers away from competing brands. It can offer insight into what consumers are willing to pay. Also, production and distribution costs must decrease as sales volume increases. Also, if the low price is part of an introductory campaign, curiosity may prompt customers to choose the brand initially, but once the price begins to rise or levels with a competing brand, they may switch back to the competitor. However, the facts simply do not support this contention. A related penetration strategy popular among smart phone providers also uses penetration pricing. Traditionally, the margin on groceries is minimal. By offering a low market price and creating significant sales volume, you can order more products at once from distributors, often resulting in bulk discounts. His love affair with computing started with his purchase of the original Mac in

Yet they are doing this while still maintaining their price skimming strategy. This method is also used for pricing a new product. Hilton in Managerial Accounting, "often is used for products that are of good quality, but do not stand out as vastly better than competing products.

Market penetration pricing example

When other firms see the high margins available in the industry, they will quickly enter. Second, a lower price would lead to lower profits as well. A low penetration price may be called a 'stay out' price. However, the margin on organic foods tends to be higher. With skimming, the door is left open for subsequent competitors to undercut your prices and defeat your ability to generate revenue and profits from early adopters. While this strategy may be risky for small grocery stores, economies of scale permit Kroger and Costco to employ this strategy. Price discrimination is illegal in many jurisdictions, but yield management is not. Skimming results in a slower rate of product diffusion and adoption.

John Kirk John R. Penetration pricing results in lower profits in the short run, however, in the long run, it results in higher profits because it increases the market base.

A price skimmer must be careful with the law.

rapid penetration pricing strategy

At the end of a specified period, the price increases. Price skimming is frequently used when a new product just entered the market, the business may be able to charge high prices as some customers would want to be first to buy the product.

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(DOC) What is skimming or penetration pricing strategy