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1) Skimming - setting high price for new products to "skim" maximum revenues from the target market.
- the company is not able to reach all levels of the society.
- Charges higher prices, that results in smaller customer base with lower but more profitable sales.
- used when there are no other competitors or comparatively less in that industry.
- Also, when providing the customers with HQ products when charging premium is acceptable.
- if the cost structure of the company is not effective, this pricing policy cannot be followed.
2)Penetration - setting a low price for a new product in the market
-unlike skimming penetration reached to huge groups of customers of all segments, as the prices are lower.
-the company makes profits via mass productions.
- if you target a market where people are sensitive to price, penetration pricing will increase demand and sales.
- production and distribution costs are lesser due to mass production and mass marketing
- companies must keep out competitions, and maintain low prices.
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