Differences between Price Skimming and Penetration Pricing

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. Let’s look at some of the differences between price skimming and penetration pricing –

  1. 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.
  2. 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. In case of penetration pricing ideal example is various services offered by telecom and satellite companies where they charge lesser initially or even give it for free for first 2 or 3 months and once customer base is set then they increase the price.
  3. In case of price skimming it is difficult to sell huge quantities because of higher price and hence company has to forgo some sales however it maintains good profit margin over its sales, whereas under penetration pricing company is able to sell in huge quantities because of low price of product however it has to forgo its profit margin because of low price of product.
  4. Under price skimming the entire focus of company is on creating premium segment of customers who are quality conscious and ready to pay any price for product and hence little attention is given towards the cost aspect of producing the product. However in case of penetration pricing the whole focus is towards reducing the production cost and other costs related to product so that product can be offered at low price to customers which in turn will help the company in capturing the market share quickly.
  5. In case of price skimming company requires extensive and aggressive marketing of product explaining its features and uniqueness so that company can justify the higher price of product whereas in case of penetration pricing marketing is required but not that much because low price of product lure customers towards the product. In other words marketing costs are higher in case of price skimming as compared to penetration pricing.

As one can see from the above that there are many differences between price skimming strategy and penetration pricing strategy and hence company adopting either of two strategies should carefully examine the benefits and limitations of both the strategies and then decide which strategy is best suited for company’s product.

0 comments… add one

Leave a Comment


Related pages


socialism disadvantagesstate the law of diminishing marginal utilitysubstitute effect and income effectincome effect and substitution effect examplesunitary demand exampleadvantages disadvantages globalizationbundling pricing strategyassumptions of break even analysis accountingdisadvantages of privatizationwhat is privatisation in economicshorizontal communication flowdebenture financeexamples of perfect competition market structurediminishing balance method depreciation calculationconcept of conservatismbill discounting definitionadvantages and disadvantages of lifo and fifowhat is the meaning of traditional economyfloating exchange ratesaman awasthidifference between corporation and conglomeratemarketing skimming pricingbenefits of merging companiesrelationship between bond prices and interest rateswhat is capm in financial managementcountries with centrally planned economydisadvantages of a mixed economyform of fdicredit sales accounting entrybenefits of privatisationdemonetized definitiondeffered revenue expenditureexamples of vertical mergerrevenue received in advance journal entryadvantages and disadvantages of central governmentadvantages and disadvantages of public corporatione trading advantages and disadvantagesskimming marketingcapitalist economy advantages and disadvantagesmarket capitalization of icici bankadvantages and disadvantages of socialist economic systemwhat is the difference between cheque and draftautocratic management stylesdifference between horizontal and vertical analysisexamples of inferior goods and normal goodswhat is a normal good and an inferior goodcharacteristic of capitalist economythe principle of absolute advantageinferior goods definitiondisadvantages of sales promotionpositives of urbanizationspot rate meaningdifference between bearer cheque and order chequedisinflation refers to a situation whereautocratic leadership style disadvantagessupplementary goods economicsmethods to calculate national incomedifference between cheque and draftbenefits of ppfadvantages and disadvantages of forecastingdurable vs nondurable goodswhat are the different types of dividend policiesmixed economy characteristicsjournal entry to record deferred revenuedifference between shares and debentures and bondsadvantage and disadvantage of organizational structurenet worth calculation formula for a companydifference between autonomous investment and induced investmentmonopolistic competition companywhat is dishonour of billconglomerate diversification exampleswhat is unsystematic riskexamples of horizontal mergersautocratic leadersaccelerated method of depreciationdefinition of durable goodwhat is monopoly and oligopolyadvantages of jit productionadvantages and disadvantages of publicity in marketing