Asked by Francis Ogega on Apr 24, 2024
Verified
Strategic pricing of new products
i. Distinguish between skimming pricing and penetration pricing.
ii. Are these two pricing strategies viable alternatives for most products? Explain.
Skimming Pricing
A pricing strategy where a high price is initially set for a new or innovative product, with the price possibly being lowered later after the initial market demand is satisfied.
Penetration Pricing
A pricing strategy where a product is initially sold at a very low price to rapidly gain market share.
Pricing Strategies
Pricing strategies are methodologies or approaches used by companies to set the selling prices of their products or services, based on factors like cost, competition, and perceived value.
- Explain the tactical approaches to pricing, specifically focusing on skimming and penetration pricing techniques.
Verified Answer
SS
Sydney SimonMay 02, 2024
Final Answer :
i. Skimming pricing is designed to obtain a high price per unit at relatively low levels of sales. As the product becomes known and interest in it grows, the price is lowered, thus stimulating sales volume.
Penetration pricing seeks to generate a relatively high level of sales volume initially in order to achieve a high market share.
ii. These two pricing strategies probably are not viable strategies for most products. The skimming strategy requires a small core of customers for whom price is unimportant compared to other characteristics of the product. On the other hand, penetration pricing is more appropriate when the market has already been established and the firm wishes to have an impact with its entry into the market.
Penetration pricing seeks to generate a relatively high level of sales volume initially in order to achieve a high market share.
ii. These two pricing strategies probably are not viable strategies for most products. The skimming strategy requires a small core of customers for whom price is unimportant compared to other characteristics of the product. On the other hand, penetration pricing is more appropriate when the market has already been established and the firm wishes to have an impact with its entry into the market.
Learning Objectives
- Explain the tactical approaches to pricing, specifically focusing on skimming and penetration pricing techniques.