pricing strategies skimming vs penetration

Penetration pricing strategy is effective when certain conditions are present in the market.

When competitors are unable to create and distribute the product at such low margins, they stay away from the market, which allows the company to increase its brand recognition. Penetration pricing also discourages new entrants in the market. Hence, when their low-priced product is launched in the market, customers who are already aware of the products of other companies make a shift to the new product. Because of greater sales, the company is able to decrease its costs, which allows companies to further decrease their price.Ĭompanies adopt penetration pricing for products that are already being offered in the market by other brands. Hence, though the profit margin for the company is low, it can generate profits through greater number of sales. The low price of the product compels a large number of customers to buy the product, thus generating high sales for the company. The company adds a nominal markup to its cost of production while setting the price of the product. In penetration pricing strategy, the new product is introduced at a low price in the market so that it penetrates the market as quickly as possible. Definitions and explanations Penetration pricing strategy In this article, we will explain these two strategies in detail. There are two strategies that companies can choose from in this stage: price-skimming strategy and market-penetration pricing strategy. The most challenging stage in this regard is the introductory stage, where the company has to determine the price of its new product for the first time.

In addition, as the product moves through its life cycle, its pricing strategies are adjusted accordingly. A company considers three aspects when determining the price of its products, i.e.

The price of a product takes into account its production cost as well as the profit margin that the company wishes to charge from its customers, which would be its major source of income. One of the most significant components of the marketing mix is ‘price’.

Pricing strategies skimming vs penetration