pricing strategies tend to change as a product goes through its product life cycle. when companies bring out a new product, they face the challenge of setting prices for the very first time. two new product pricing strategies are available: price-skimming and market-penetration pricing. the first new product pricing strategies is called price-skimming. price-skimming (or market-skimming) calls for setting a high price for a new product to skim maximum revenues layer by layer from those segments willing to pay the high price. as a result of this new product pricing strategy, the company makes fewer but more profitable sales. an example for a company using this new product pricing strategy is apple. the phones were, consequently, only purchased by customers who really wanted the new gadget and could afford to pay a high price for it. this way, the company skimmed off the maximum amount of revenue from the various segments of the market.
however, this new product pricing strategy does not work in all cases. the product’s quality and image must support the high initial price, and enough buyers must want the product at that price. 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 a new product to penetrate the market quickly and deeply. the high sales volume leads to falling costs, which allows companies to cut their prices even further. by introducing products at very low prices, a large number of buyers is attracted, making ikea the biggest furniture retailer worldwide. in order for this new product pricing strategy to work, several conditions must be met. the market must be highly price sensitive so that a low price generates more market growth and attracts a large number of buyers. and finally, the low price must ensure that competition is kept out of the market, and the company using penetration pricing must maintain its low-price position.
penetration pricing strategy is one in which the company charges a low price, in the beginning, to derive maximum sales volume from the price-sensitive customers. the three major aspects that influence the pricing of a product are cost, consumer demand and competition. for the purpose of entering the market with a new product, the firm’s management has to decide as to which pricing strategy to be adopted between penetration pricing or skimming pricing. it aims at maximizing the market share of the product, and once it is achieved, i.e.
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. 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. on the contrary, skimming pricing strategy is when a new product is launched in the market for which there is no competition. i’m learning principles of marketing and the reference book is hard to understand with its words.
the opposite new product pricing strategy of price skimming is market- penetration pricing. instead of setting a high initial 1. price skimming: under this strategy a high introductory price is charged for an innovative product and later on the price penetration pricing aims at achieving a greater market share, by offering the product at low prices. as, difference between skimming and penetration pricing, price penetration examples, price penetration examples, price skimming examples, market skimming pricing. with skimming, your prices are set high to maximize profits in the short term by targeting the customers most interested in your product. in contrast, penetration pricing means you offer a low price to attract many customers. penetration pricing relies on a low upfront price to attract customers, while skimming is the use of high upfront prices to maximize short-term profits from the most eager and interested customers.
penetration pricing strategy is one in which the price of the product is set low at the time it is launched so penetration pricing vs. skimming. with pricing penetration, companies advertise new products at low price skimming vs penetration pricing. penetration pricing is often confused with price skimming, but,
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