If your business is planning to launch a new product, penetration pricing and price skimming are two marketing strategies you should consider. Each strategy has benefits and disadvantages, so research your target market carefully beforehand to determine what approach will work best for your company. Penetration pricing occurs when a company launches a low-priced product with the goal of securing market share. For example, a sponge manufacturer might use a penetration pricing strategy to lure customers from current competitors and to discourage new competitors from entering the industry. Gitman and Carl McDaniel. To properly execute a penetration-pricing strategy, the sponge manufacturer first must gear up for mass production and then launch a sizable advertising campaign to publicize its new low-priced sponge.
Price skimming is a pricing strategy in which a marketer sets a relatively high initial price for a product or service at first, then lowers the price over time. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price. Price skimming is sometimes referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus early in the product life cycle in order to exploit a monopolistic position or the low price sensitivity of innovators. Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time. Price skimming commonly occurs in technological markets as firms set a high price during the first stage of the product life cycle.
Each strategy has. Mountjoy will provide a welcome alternative to the traditional ski resort experience. His responsibilities include establishing a market penetration strategy, Skiing matching and penetration stradegy. Chapter Pricing Strategies.
Awareness of these forces can help a company stake out a position in its industry that is less vulnerable to attack. The essence of strategy formulation is coping with competition. Yet it is easy to view competition too narrowly and too pessimistically.