Compare and contrast skim pricing strategy and penetration pricing strategy
What will be an ideal response?
Skim pricing is a market-based pricing strategy most likely to occur at the early stages of the product life cycle. In this case, a business will pursue a premium price strategy while still delivering superior customer value until competition can match its source of competitive advantage. Favorable conditions for implementation are: (1 ) considerable differentiation, (2 ) quality-sensitive customers, (3 ) sustainable advantage, (4 ) few competitors, (5 ) few substitutes and (6 ) difficult competitor entry.
Penetration pricing is a cost-based pricing strategy most likely to be employed in the growth stage of the product life cycle where volumes are likely to grow fastest in response to lower prices. The primary objective is to build volume that drives down cost. Favorable conditions for implementation are basically opposite those for the skim pricing strategy: (1 ) no or limited differentiation, (2 ) price-sensitive customers, (3 ) no sustainable advantage, (4 ) many competitors, (5 ) many substitutes and (6 ) easy competitor entry.
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