Question

Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. Suppose they are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their primary goal of business is to maximize economic profits, although they want to do business honestly.

A. ) You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supportive reasoning for and against each pricing alternative.

Answer 1

Solution(s):

A skimming price strategy is that strategy in which a firm tries to skim elite class of a target market, the part of market which is willing to pay maximum for a product. Thus in this strategy high price strategy is used.

Whereas, in penetration, the motive is to grab maximum market share of the target market by charging comparatively lower price than competitors.

If we consider this case where the motie is to maximize profitability and th kind of market is basic product market where baby products are sold, thene penetrating market would be more feaisble. There are number of renowned brands that provide baby care products in these areas. Competing with them and charging high price would let the firm grab few customers only. If a low price is set up middle and ow income group may be targetted who are not able to purchase those renowned brands like Jhonsons and Jhonsons.