Question Tag: Skimming Pricing

i) Penetration Pricing vs. Skimming Pricing:

• Penetration Pricing:
  This strategy involves initially charging lower prices for products to build sales volumes and increase market share. The goal is to attract a large number of customers quickly by offering the product at a lower price than competitors.
  (2 marks)
• Skimming Pricing:
  This strategy involves initially charging high prices for products with the objective of recouping investments quickly. The price is later reduced as competitors enter the market or as demand from early adopters decreases.
  (2 marks)

ii) Circumstances for Use:

• Penetration Pricing Strategy:
  1. When introducing a new product to the market to quickly gain market share.
  2. When the company aims to achieve economies of scale by increasing production volume.
  3. When targeting price-sensitive customers to maximize sales.
     (3 points @ 1 mark each = 3 marks)
• Skimming Pricing Strategy:
  1. When the product is new and has little or no competition in the market.
  2. When the product has a high appeal to premium customers who are willing to pay more.
  3. When there is an anticipated high demand for the product due to its unique features or innovations.