Question

What is the difference between a penetration pricing strategy and a skimming pricing strategy? Under what circumstances would each be used?

Answer 1

Here are the differences between both he pricing strategy.

Penetration pricing is used for deciding the price of the product when company wants to capture a large market share. For this the company keeps its price very low. By this way the company penetrates into the market as because of the low price of the product mass market is attracted and slowly the company sells huge quantity of the product and earns profits.’ For an example Xiaomi mobile which is world’s third largest mobile selling company after Samsung and Apple foes this strategy. It keeps its price so low that other companies do not offer that features in the same price. By this way the company sells huge quantity and earns profit.

Skimming price is the opposite of it. In this pricing strategy the company keeps the price very high initially so that the early adopters can but the products. By this way the company earns huge profit as their margins are high because of the high pricing. When the product gets old then the company reduces its prizes so that society at large can purchase that product. By this way whole the society can buy the product,.

The example for this strategy is Apple I phone. Initially the Iphone price I kept very high. The minority who have purchasing capacity with them nut the product and later with the time passes the company reduces the price of the product for society at large.

Penetration pricing is used when a company wants tp penetrate into the market. And skimming g pricing strategy is used when the brand is established and there are loyal customers of the brand.