When the product is charged high, it will cover the cost of production and promotion expenses easily. Further, a huge amount is invested in the promotional activities, that also adds to its cost. In the beginning, there is a huge requirement of capital for producing the product, resulting in high production cost.In the initial phase, the demand for the product is not known, and high price helps in covering the cost of production.In the early stages, the demand for the product is inelastic, till the product occupies a good position in the market.Market skimming pricing is adopted by the company, due to the following reasons: This technique is used in case of new product, which faces no to little competition in the market, and have a great extent of consumer acceptability. It entails fixing a high price for the new product before other competitors step into the market.

The pricing strategy in which high markup is charged for the new product, leading to the high price, so as to skim the cream from the market, is known as Skimming Pricing. It restricts new entrants from entering the market.It can help in increasing sales of the product in short period.The low price will lure customers to switch to the new product, who are already familiar with other brands. New product offered by the firm is already provided by other well-established brands.The reasons behind adopting penetration pricing are as under: Penetration pricing results in lower profits in the short run, however, in the long run, it results in higher profits because it increases the market base. when the demand picks up, the firm can increase the price of the product. It aims at maximizing the market share of the product, and once it is achieved, i.e. Penetration Pricing implies a pricing technique in which new product is offered at low price, by adding a nominal markup to its cost of production, to penetrate the market as early as possible. Small quantity is sold due to high price. Skimming Pricing means a pricing strategy wherein the firm set high price for the product at its introduction stage so as to receive maximum profit.īulk quantities is sold because of low price. Penetration Pricing is a pricing technique in which the price set by the firm is low initially, so as to attract more and more customers. Content: Penetration Pricing Vs Skimming Pricing The article excerpt explains the difference between penetration pricing and skimming pricing. For the purpose of entering the market with a new product, the firm’s management has to decide as to which pricing strategy to be adopted between penetration pricing or skimming pricing. The three major aspects that influence the pricing of a product are cost, consumer demand and competition. Price is among the important components of the marketing mix, which is the firm’s outright source of earning, and it not only covers the cost of production but also contains profit margin.

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