Pricing C12: Skimming, Penetration, and Strategic Pricing for Market Entry

Strategic pricing

pricing designed to achieve specific objectives when launching a product or entering a new market.

Market Analysis

Assess customer segments, competition, and demand elasticity.

Product Differentiation

Unique features justify higher prices; commoditized products require competitive pricing.

Long-Term Goals

Balance short-term revenue with sustainable growth.

Value-based pricing

Prices based on customer willingness to pay (e.g., premium software priced for enterprise users).

Cost-Plus Pricing

Covers production costs plus a markup (e.g., industrial equipment).

Competitive Pricing

Aligns with or undercuts competitors (e.g., budget airlines).

Customer Perception

High prices signal quality; low prices suggest accessibility.

Market Conditions

High demand supports higher prices; saturated markets require lower prices.

Product Life Cycle

New products may command premiums; mature products face price pressure.

Market Skimming Pricing

Setting high initial prices to target price-insensitive early adopters, then gradually lowering prices to reach broader segments; Targets premium or niche markets; Suits innovative or differentiated products; profit-focused, short-term revenue from high margins

Penetration Pricing

Setting low initial prices to quickly gain market share and attract a large customer base; Targets price-sensitive markets; Often used in competitive or commoditized markets; volume focused, long-term gains through market dominance.

Maximum Market Skimming

Pushing prices to the highest level the market will bear, maximizing revenue from a small, affluent segment; prioritizes profit from a niche

Brand Awareness

Low prices generate buzz and visibility (e.g., free trials for software)

Customer Lock-In

Build loyalty or ecosystem dependency (e.g., cheap razors to sell blades)

Market Dominance

Capture share to set industry standards (e.g., Google’s free Android OS)

Penetration-Based Pricing Impact on Market Entry

Accelerates adoption, especially in crowded markets

Penetration-Based Pricing Impact on Competition

Forces rivals to lower prices or differentiate, potentially squeezing their margins