Share on Facebook 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 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.
It can often increase both market share and sales volume. The major disadvantage, however, is that an increase in sales volume may not lead to a profit if prices must remain low.
Also, if the low price is part of an introductory campaign, curiosity may prompt customers to choose the brand initially, but once the price begins to rise or levels with a competing brand, they may switch back to the competitor.
Penetration Pricing Versus Skimming Skimming is the opposite pricing strategy to penetration pricing.
Using skimming, they market products at high prices with relatively high margins. Effectively, producers are skimming the market to maximize profits. Over time, prices will reduce to levels comparable to market prices in order to capture the rest of the market.
Example of Penetration Pricing Costco and Kroger, two major grocery store chains, use penetration pricing for the organic foods they sell. Traditionally, the margin on groceries is minimal. However, the margin on organic foods tends to be higher. Also, the demand for organic, or natural, foods is growing significantly faster than the market for non-organic groceries.
As a result, many grocers offer more extensive selections of organic foods at premium prices to boost their profit margins.
However, Kroger and Costco use a penetration pricing strategy. They are selling the organic foods at lower prices. While this strategy may be risky for small grocery stores, economies of scale permit Kroger and Costco to employ this strategy.Explain the difference between a price skimming and a market penetration pricing strategy price skimming - product or service must be perceived as breaking new ground or customers will not pay more than what they pay for other products.
Concerning a penetration pricing strategy, a business will do the opposite of the skimming pricing strategy. It will first offer its product or service at a very low price. Sep 28, · The right pricing strategy will maximize your profits, and the wrong one can really hurt your business.
6 Different Pricing Strategies: Which Is Right for Your Business? By April Maguire.
|What Is The Difference Between Market Skimming And Market Penetration? - Blurtit||One stage is particularly challenging: This is called New Product Pricing.|
|Key Differences Between Penetration Pricing and Skimming Pricing||Michael Ugulini Certified Educator Regarding these three pricing strategies, the difference lies in the strategic vision of the company that seeks to employ a particular pricing strategy. For example, pertaining to the skimming pricing strategy, a business will look to charge the highest price it can initially.|
|Pricing Strategies: Price Skimming and Penetration Pricing||Price Skimming and Penetration Pricing Article shared by: Some of the most important pricing strategies are as follows:|
Pricing for Market Penetration. Penetration strategies aim to attract buyers by offering lower prices on goods and services.
While many new /5(). Penetration Pricing 1. Price Skimming: Under this strategy a high introductory price is charged for an innovative product and later on the price is reduced when more marketers enter the market with same type of product for example, Sony, Philips [ ].
Market-Penetration Pricing – New Product Pricing. 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 .
Penetration Pricing 1. Price Skimming: Under this strategy a high introductory price is charged for an innovative product and later on the price is reduced when more marketers enter the market with same type of product for example, Sony, Philips [ ].