Question

- Define “Price Skimming” and “Penetration Pricing.” Explain their usefulness in marketing. explain in a paragraph.

Answer 1

Price skimming is nothing but the price that is set high to gain maximum profit. Penetration pricing is nothing but the price that is set low in order to gain market share.

Example of price skimming is Sony introduce new products at high price and example of price penetration is Reliance company that introduce low cost mobile phones.

Price skimming strategy is used when the product is highly distinctive. The price is set high initially to gain maximum profit and the price is then lowered overtime. This strategy helps in establishing the product and make the customers want the product exclusively. Thus this strategy discourage competitors from entering the market.

Price penetration strategy is used when the product is not highly distinctive. Low cost attracts price sensitive customers and they will prefer to buy the product because of its low cost. This helps in increasing the market share as more customers will be attracted towards the products or services. This pricing strategy helps in developing the economies of scale. This refers to business optimizing profits by lowering the operational cost and improving the efficiency.