skimming vs penetration pricing - exam 3

definiton: skimming

sets price high to capture the customers who are willing to pay it. After, the price is lowered to gain attention from price-sensitive consumers

skimming is effective when

• enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable

• the high initial price will not attract competitors

• lowering the price has only a minor effect on increasing the sales volume and reducing the unit costs

• customers interpret the high price as signifying high quality

definition: penetration

setting low initial price on a new product to appeal immediately to the mass market

penetration is effective when:

• many segments of the market are price sensitive

• a low initial price discourages competitors from entering the market

• unit production and marketing costs fall dramatically as production volume increases