Question

Market skimming, market penetration, companion products (captive pricing), and cost-based pricing are some of the pricing strategies marketing managers use when marketing globally.

• Compare each of the pricing strategies listed above and how they apply.
• Explain Incoterms (International Commercial Terms).
  • Why is it important to understand those internationally accepted terms of trade? Provide examples.

Answer 1

	Market Skimming	Market Penetration	Captive Pricing
Meaning	When the product is introduced in the market, the firm set a high price to receive maximum profit.	Pricing technique where the price of the product is set to be low initially by the firm to capture the market and attract more customers.	Pricing of product that has core product along with the number of accessory products
Demand	Price Inelastic	Price elastic	Price elastic for captive product
Margin	High	Low	Medium
Sales	Small quantity is sold because of the high price	Bulk quantity is sold because of the low price	Small quantity is sold for core products while bulking for accessory product
Object	Skim the cream	Penetrate the market	Capture the accessory product market

Cost-Based Pricing: The prices of the products are set by the firm based on the cost of the goods or the services being sold. A fixed percentage of profit is added while selling setting the price of the final product.

• This pricing is mostly used by industries having high fixed costs such as the aviation industry.
• The product is sold above the break-even point to gain profit.
• The company first to target the profit and based on the final pricing is done.

The Incoterms is a set of pre-defined commercial terms relating to international commercial law published by the International Chamber of Commerce which are widely used in international commercial transactions or procurement.