The most vital consideration in any business is price. When a company launches a new product or service they implement different marketing strategies by playing with pricing. Everything revolves around price be it profit margins or consumer cost. However, any firm’s management can get overwhelmed by the decision of choosing the right pricing strategy that fits the nature of business. However, the most complex stage is the initial phase, where a company has to decide the price for a newly launched product. Later, with the product starts running in the market pricing strategies can be adjusted accordingly. The two major pricing policies are price skimming and penetration. But, choosing between the two options can be crucial. So, if you are still in two minds and wondering how to do my assignment and think about the best strategy for the company simultaneously. This blog will help you in taking your final decision.
Take a deeper dig into how pricing relates to your overall marketing strategies and attracts customers. It is important to move forward with the right pricing plan as it will help your business to maximize profits. Also, the right pricing strategies help you in satiating a better brand identity. The goal of the penetration pricing strategy is to swiftly penetrate the market by introducing the new product at a cheap price. When deciding the price of the goods, the corporation adds a small markup to its cost of manufacture. A huge number of people are compelled to purchase the product because of its low price, which results in high sales for the business.
In the skimming tactic, the product is initially sold for a premium price with the goal of removing the “cream” from the market. The business targets customers who are willing to pay a large markup for the products and sets a high initial price for them in order to make the most money possible quickly. In the beginning, the company sells fewer things, but the profit margin is substantial.
Business Strategies: Price Skimming Vs Penetration
Price Penetration
Companies use penetration pricing for goods that other brands are already selling on the market. Customers who are already familiar with the products of other companies switch to the new product when their low-priced product is introduced to the market. Penetration price also deters new competitors from entering the industry. Competitors stay away from the market when they are unable to produce and distribute the product at such low margins, which helps the business build brand awareness. When specific market factors are in place, the penetration pricing technique works well. First of all, when a low-cost product enters the market, consumers should be very responsive to price and switch to that product.
Price Skimming
There are a number of prerequisites that must be met in order to use a skimming price technique. First of all, the product needs to be original and offer characteristics that have never been seen before. Because there is no product like it on the market, people are willing to pay a high price for it. Second, the business must be able to maintain its uniqueness, meaning that its products must be difficult for rivals to imitate. The market should also have a segment of clients that appreciate unique products and want to be the first to purchase them; as a result, they are willing to pay more for them. Get away with your assignment problems quickly so you can join the track of pricing strategies right on time. So, hand over your boring tasks to assignment expert and ease
Key Differences: Price Skimming Vs Penetration
- Penetration Pricing can be characterized as a pricing strategy used by the business to entice an increasing number of customers, in which the product is initially offered at a low price. On the other hand, the term “skimming pricing” refers to a pricing strategy in which a high price is initially paid in order to maximize profit.
- Offering the goods at a discount in order to gain a larger market share is known as penetration pricing. As opposed to this, the goal of the skimming pricing strategy is to charge the highest price while still making the most profit from the sale.
- When the demand for the product is reasonably elastic, the penetration pricing technique is used. Conversely, skimming pricing is applied when a product’s demand is rigid.
- In comparison to skimming pricing, which has a much higher profit margin, penetration pricing has a far lower profit margin.
- Large amounts of products are sold by the company since the price of the product is initially low in penetration pricing. In contrast, when prices are skimmed, customers only purchase a limited amount of the product because of the high price.
- By providing items at low prices, penetration pricing seeks to capture a larger market share. In contrast, price-skimming raises the product’s price significantly in an effort to maximize profits.
- The market is quite responsive to pricing when it comes to penetration pricing. Customers prefer to utilize low-priced products in such markets, which increases the market share of cheap prices. The price elasticity is low in skimming pricing, on the other hand, and customers are willing to pay high rates to get the goods.
Conclusion: Price Skimming Vs Penetration
In markets where there is little to no product difference, penetration pricing is reasonable. The skimming pricing technique, on the other hand, is more appropriate for products with no market rivals. Companies should conduct thorough market research before deciding on a price plan for their new product because this choice will either make or break the product. One of the key elements of the marketing mix is price. No matter how amazing a product or service is, how it is priced can have an impact on sales. As a result, companies need to take a number of aspects into account when setting their pricing. Penetration and skimming pricing tactics are examples of important pricing strategies.
A new product is presented to the market at a low price to facilitate market penetration. This pricing strategy is known as penetration pricing. It works well for goods with little to no product distinction. In contrast, skimming pricing refers to a pricing strategy in which a new product is marked up significantly, leading to a high price. It works well for goods that have no rivals on the market.