Both price skimming and penetration pricing are short-term pricing techniques adopted by the firms to market and sell their products or services. Price skimming is a technique in which companies set higher initial price for their products or services. On the other hand, penetration pricing is a pricing method in which firms charge low price for the products initially and gradually increase over time.
Difference Between Price Skimming And Penetration Pricing
The main difference between price skimming and penetration pricing can be discussed as follows:
1. Introduction
Price Skimming: It is a price setting method in which firm offers higher initial price while introducing the product.
Penetration Pricing: It refers to the pricing strategy in which firm charges less initial price for its product.
2. Target Customer Segment
Price Skimming: In this strategy, firms target price insensitive customers who can pay premium price.
Penetration Pricing: This pricing strategy targets price sensitive or general public to increase the sales volume.
3. Volume Of Sales
Price Skimming: Small quantity of products is sold at initial stage because of higher price. It gradually increases when price decreases.
Penetration Pricing: Initially, high quantity of product is sold because of lower selling price. But it gradually decreases when the price increases.
4. Objective
Price Skimming: The main objective of this strategy is to attract high-end customers and generate maximum revenue as soon as possible.
Penetration Pricing: The objective of this method is to attract more general or price sensitive customers and expand market share.
5. Suitable For
Price Skimming: It is suitable for innovative and unique products having inelastic demand.
Penetration Pricing: It is suitable for products having elastic demand.
6. Profit Margin
Price Skimming: Firms enjoy high profit because of high selling price
Penetration Pricing: Less profit because of lower selling price
7. Competition
Price Skimming: This pricing technique may attract competitors because of high revenue.
Penetration Pricing: It limits the competition or discourages competitors to enter the market.
8. Cost Recovery
Price Skimming: Because of higher profit margin firms can recoup investment and other costs very quickly.
Penetration Pricing: Quick recovery of cost is not possible in this strategy because of lower profit margin.
Also Read
Meaning and objectives of price skimming
Meaning and objectives of penetration pricing
Advantages and disadvantages of price skimming
Advantages and disadvantages of penetration pricing
Distinction Between Price Skimming And Penetration Pricing In Short
* Price skimming gives focus on premium customers. But Penetration pricing targets general public.
* Price skimming generates more profit than penetration pricing.
* Price skimming recovers costs quickly which is not possible in penetration pricing.
* Price skimming works for inelastic demand. Penetration pricing is applicable in case of elastic demand.
* Price skimming attracts competitors but penetration pricing discourages competitors.
