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What is the difference between market skimming and penetration pricing?

Asked by John McDaid on March 28th 2012 10:37 a.m.

1 Answer to this question...

Answered by Tak Lo on April 8th 2012 12:02 p.m.
Pricing skimming is a pricing strategy where a high price is established first for a product or service, then the price is lowered over time. In practice, it allows the company to recover costs in the beginning before competitors enter and lowers the market price. For example, the iPhone when it first came out had a higher price, but quickly reduced prices to capture a larger customer base. Penetration pricing is the opposite - firms first price products or services low to gain market share, then subsequently raise prices. One problem with this approach is that customers may then have price expectations of a product or service, and resist later price increases.