Describe the 10 main diffrences between penetration pricing and skimming pricing strategies
Penetration Pricing Strategy:
1. Price Setting: Penetration pricing involves setting a relatively low price initially to gain a large market share.
2. Market Entry: This strategy is used when a company enters a new market or launches a new product.
3. Customer Attraction: The low price is intended to attract customers who are price-sensitive or who are looking for a good deal.
4. Competitive Advantage: It helps the company establish a competitive advantage by quickly gaining market share and potentially deterring competitors.
5. Profit Generation: The aim is to generate profits through high sales volume rather than high prices.
6. Potential Loss: Initially, the company may incur losses due to the low pricing, but it expects to make up for it with increased sales over time.
7. Demand Generation: The lower price stimulates demand by making the product more affordable and accessible to a larger customer base.
8. Market Positioning: The company positions itself as a value-for-money option in the market.
9. Pricing Flexibility: Penetration pricing allows for more flexibility in adjusting prices in the future as the market and competition evolve.
10. Long-term Strategy: It is a long-term strategy that focuses on market share growth and building customer loyalty.
Skimming Pricing Strategy:
1. Price Setting: Skimming pricing involves setting a high price initially to maximize profits from early adopters and customers willing to pay a premium.
2. Market Entry: This strategy is used when a company introduces a new and innovative product with limited competition.
3. Targeting Early Adopters: Skimming pricing targets early adopters who are willing to pay a premium price for acquiring the latest product.
4. Profit Maximization: The high price allows the company to maximize its profits from the initial demand before competition intensifies.
5. Limited Sales Volume: Skimming pricing may result in lower sales volume initially due to the premium price, but the profitability per unit is higher.
6. Competitive Advantage: The high initial price may act as a barrier to entry for potential competitors, giving the company a competitive advantage.
7. Value Perception: The high price creates a perception of exclusivity, quality, and innovation in the minds of customers.
8. Pricing Inflexibility: Skimming pricing strategy may be less flexible in adjusting prices in the long run as customers expect prices to decrease over time.
9. ROI Focus: The strategy aims to quickly recover research and development costs and generate a high return on investment.
10. Short-term Strategy: Skimming pricing is typically a short-term strategy, as prices are expected to decrease gradually as competition enters the market.
Penetration pricing and skimming pricing are two different pricing strategies used by businesses to introduce and sell products in the market. Here are the 10 main differences between these two strategies:
1. Pricing Objective:
- Penetration Pricing: The objective is to capture a large market share by setting a lower price initially.
- Skimming Pricing: The objective is to maximize profit by setting a higher price initially.
2. Initial Price:
- Penetration Pricing: It offers products at a lower price compared to competitors.
- Skimming Pricing: It sets a higher price compared to competitors.
3. Target Customers:
- Penetration Pricing: It focuses on price-sensitive customers who are more attracted to lower prices.
- Skimming Pricing: It targets customers who are willing to pay a premium price for new and exclusive products.
4. Market Positioning:
- Penetration Pricing: It positions the product as a cost-effective option in the market.
- Skimming Pricing: It positions the product as a premium and high-quality option in the market.
5. Competition:
- Penetration Pricing: It often triggers price wars as competitors may reduce their prices to stay competitive.
- Skimming Pricing: It may face less competition initially as competitors may wait for the product to become more established.
6. Market Share:
- Penetration Pricing: It aims to gain a larger market share quickly.
- Skimming Pricing: It may have a lower market share initially due to the higher price.
7. Profitability:
- Penetration Pricing: It may have lower profit margins initially but can generate higher sales volume.
- Skimming Pricing: It may have higher profit margins initially but may sell fewer units.
8. Product Image:
- Penetration Pricing: It may be associated with cost-effective and affordable products.
- Skimming Pricing: It may be associated with exclusive and luxury products.
9. Demand Curve:
- Penetration Pricing: It assumes a more elastic demand curve, where demand increases with lower prices.
- Skimming Pricing: It assumes a more inelastic demand curve, where demand remains stable or may decrease with higher prices.
10. Timing:
- Penetration Pricing: It is used when entering a new market or launching a new product to gain market acceptance quickly.
- Skimming Pricing: It is used when introducing an innovative or technologically advanced product to take advantage of early adopters' willingness to pay higher prices.
It's important to note that businesses may adopt a combination of both strategies or switch strategies over time based on market conditions and product lifecycle.