When introducing new products, some companies use price skimming whereas others use penetration pricing.Required:A. Distinguish between price skimming and penetration pricing.B. Is price skimming a viable alternative for most new products? Explain.
What will be an ideal response?
A. Price skimming is designed to obtain a high price per unit at relatively low levels of sales. As the product becomes known and interest in it grows, the price is lowered, thus stimulating sales volume. Penetration pricing, on the other hand, seeks to generate a relatively high level of sales initially in order to achieve a high market share. Such penetration is accomplished through an initial price that is relatively low.
B. Price skimming is probably not viable for most products. The skimming strategy requires a small core of customers for whom price is unimportant compared to other characteristics of the product-which might be the case with wealthy buyers and/or luxury goods. These customers are willing to pay just about any price to secure the product.
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What will be an ideal response?
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