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Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price.
Price skimming is sometimes referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus. If this is done successfully, then theoretically no customer will pay less for the product than the maximum they are willing to pay. In practice, it is almost impossible for a firm to capture all of this surplus.
Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment.
Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time.
IBM used to employ this strategy.
Penetration pricing is a pricing strategy where the price of a product is initially set at a price lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term. The price will be raised later once this market share is gained.
Texas Instruments used to employ this strategy.
Skimming pricing is designed to capture high margins at the expense of large sales volume. It is high in relation to what most buyers in a segment can be convinced to pay.
For example, in many sports a segment of enthusiasts will often pay astronomical prices for the bike, club, or racquet that they think will give them an edge.
Penetration pricing involves setting a price low enough to attract and hold a large base of customers. Penetration prices are not necessarily cheap, but they are low relative to perceived value in the target segment.
Hyundai, for example, used a sustained penetration pricing strategy to enter the U.S. Market.
again agreed with good answer by mr.vinod..........
