It aims at maximizing the market share of the product, and once it is achieved, i. 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.
The reasons behind adopting penetration pricing are as under:. The pricing strategy in which high markup is charged for the new product, leading to the high price, so as to skim the cream from the market, is known as Skimming Pricing. It entails fixing a high price for the new product before other competitors step into the market.
This technique is used in case of new product, which faces no to little competition in the market, and have a great extent of consumer acceptability. Market skimming pricing is adopted by the company, due to the following reasons:.
When a new product enters a market having no to little product differentiation, penetration pricing strategy is used. On the contrary, skimming pricing strategy is when a new product is launched in the market for which there is no competition. Thank you very much for this useful post. Your explaination makes sense to me a lot. On the other hand, in skimming pricing, there is low price elasticity, and customers are ready to pay high prices to acquire the product.
There are some customers who are willing to pay the high price to acquire an exclusive product before it becomes mainstream. Hence, in markets where customers are willing to pay a price differential to acquire a latest product, skimming pricing is more relevant. On the other, penetration pricing is more appropriate for markets that do not have such class segments. Penetration pricing is appropriate for markets where there is little or no differentiation among the products.
On the other hand, for product that has no competition in the market, the skimming pricing strategy is more pertinent. Before companies choose a pricing strategy for their new product, they should perform a thorough research of the market, as this decision is very important and determines the success or failure of a product.
Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Penetration pricing vs skimming pricing strategies Posted by Terms compared staff Nov 15, Marketing. Definitions and explanations Penetration pricing strategy In penetration pricing strategy, the new product is introduced at a low price in the market so that it penetrates the market as quickly as possible. Related posts: Proactive strategies vs reactive strategies Brand loyalty vs customer loyalty Horizontal integration vs vertical integration Push marketing vs pull marketing Upselling vs cross-selling Transactional marketing vs relationship marketing Customer value vs customer satisfaction.
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Penetration pricing. The strategy in which low prices are fixed for new products to penetrate deeply into the market in a short time. The penetration pricing strategy, in particular, aims in penetrating the market and is considered one of the most useful strategies to increase sales. There are several advantages of implementing a penetration pricing strategy in the market. It sure does have some drawbacks, but the advantages are much more useful and helpful and result in the growth of the respective business, firm, company or brand.
Many companies have implemented this strategy to grow their sales. There are several examples of various companies that have adopted and implemented the penetration pricing strategy. One of the most prevailing and common examples of the penetration pricing strategy is companies or websites offering a free subscription for a certain amount of time to their users so that after the free subscription, they attract more subscribers to their website.
The strategy of product pricing in which companies set a higher price for a certain product initially and gradually, over the course of time decrease its price in order to attract more customers is known as skimming pricing strategy. The skimming pricing strategy, in particular, aims at skimming the market and is considered one of the most useful strategies to increase sales. There are several advantages of implementing a skimming pricing strategy in the market.
There are several examples of various companies that have adopted and implemented the skimming pricing strategy. However, the company must know the limitations of this strategy before implementing and adopting it in order to avoid any sort of losses. If the company is willing to take risks and is willing to compensate for the losses if the strategy fails, then the company must try to make this strategy work by taking every single aspect into consideration.
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