Strategic Pricing Approaches: Skimming vs. Penetration PPT

This PPT slide, part of the 38-slide Pricing Strategy PowerPoint presentation, presents a comparative overview of 2 distinct pricing strategies: price skimming and penetration pricing. At the core, it emphasizes the strategic decision-making process involved in selecting an appropriate pricing approach based on market objectives.

Price skimming is defined as the practice of launching a new product or service at a high price point. This initial pricing strategy aims to maximize profit margins by capturing the willingness to pay of early adopters. As competition intensifies, the price is gradually lowered, allowing the company to adjust to market dynamics. The slide notes that this method can be likened to riding down the demand curve, where increased competition leads to a natural decline in prices. This approach can be particularly effective in markets where there is a strong differentiation of the product or service.

On the other hand, penetration pricing is characterized by introducing a product or service at a lower initial price point compared to competitors. This strategy is designed to quickly gain market share and increase sales volume, particularly among price-sensitive customers. By appealing to this segment, companies can establish a foothold in the market more rapidly. The slide highlights that this approach is often used when the goal is to build a customer base quickly, even if it means sacrificing initial profit margins.

Understanding these 2 strategies is crucial for executives as they navigate pricing decisions that align with their broader market entry or expansion goals. The choice between skimming and penetration pricing can significantly impact market positioning and long-term profitability.

This slide is part of the Pricing Strategy PowerPoint presentation.

This Pricing Strategy framework is created by former McKinsey, BCG, Deloitte, EY, and Capgemini consultants. It teaches the Strategy Consulting approach to formulating a Pricing Strategy. Financial model also included.

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