Skimming and Penetration Pricing
MARKET SKIMMING PRICING:
It is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. The purpose of such strategy is to make higher profits within the short run period in order to recover the costs incurred in product researching, manufacturing, marketing etc. because such costs associated with the product are high.
However this strategy carries with it the risk of acceptance of the product in the market as other competitors may tend to lower their price range of the same product thereby forfeiting a large part of the market share. Then they lower the cost to attract other customers, more price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of customer segments, as prices are lowered over time.
Example:
When Sony introduced the world 's first high definition television to the Japanese market in 1990, the high-tech sets cost $43,000. These televisions were purchased only by customer who could afford to pay a high price for the new technology.
Over the next several years, Sony rapidly reduced the price to attract new buyers.
By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000.
In 2001, a Japanese consumer could buy a 40-inch HDTV for about $2000, a price that many more customers could afford.
In this way, Sony skimmed the maximum amount of revenue from the various segments of the market.
Strategy
You can generally divide price skimming into three distinct phases.
Phase One:
During the first phase, the product is set at its highest price. This usually occurs during the product 's initial launch when the company is targeting early adopters - those people that just have to have the latest and greatest thing, like the latest smart phone, and price isn 't too much of a concern.
The company 's profit margins will be as high as they ever will be.
Phase Two:
The second phase occurs when the early adopters have made their
It is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. The purpose of such strategy is to make higher profits within the short run period in order to recover the costs incurred in product researching, manufacturing, marketing etc. because such costs associated with the product are high.
However this strategy carries with it the risk of acceptance of the product in the market as other competitors may tend to lower their price range of the same product thereby forfeiting a large part of the market share. Then they lower the cost to attract other customers, more price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of customer segments, as prices are lowered over time.
Example:
When Sony introduced the world 's first high definition television to the Japanese market in 1990, the high-tech sets cost $43,000. These televisions were purchased only by customer who could afford to pay a high price for the new technology.
Over the next several years, Sony rapidly reduced the price to attract new buyers.
By 1993, a 28-inch HDTV cost a Japanese buyer just over $6,000.
In 2001, a Japanese consumer could buy a 40-inch HDTV for about $2000, a price that many more customers could afford.
In this way, Sony skimmed the maximum amount of revenue from the various segments of the market.
Strategy
You can generally divide price skimming into three distinct phases.
Phase One:
During the first phase, the product is set at its highest price. This usually occurs during the product 's initial launch when the company is targeting early adopters - those people that just have to have the latest and greatest thing, like the latest smart phone, and price isn 't too much of a concern.
The company 's profit margins will be as high as they ever will be.
Phase Two:
The second phase occurs when the early adopters have made their