Price skimming works well for innovative or luxury goods which tend to have a short life cycle or are made with supreme quality. The two strategies are also suited for different kinds of products. Price penetration means to charge products at a lower end or with little margin whereas price skimming charges new products at a higher-end or with a large margin. Price penetration is the opposite of price skimming. But before it became the world’s biggest streaming service, Netflix had taken over the DVD rental business. Netflix was founded by Reed Hastings and Marc Randolph in 1997. Now that we’ve covered the basic theory, let’s walk through a couple of examples: Netflix The products are subjected to standardization (e.g. The skimming pricing strategy doesn't work - Competition remains high after the introduction stage. The market is large enough with sufficient demand.

It is easy to achieve economies of scale. The product has an elastic demand curve (the change in the price affects the product demand significantly). Also, there’s a risk of a price war with other competitors. However, the drawback is if the price remains low, the business may not be able to make a sustainable profit. As production costs decrease, the company can manufacture more goods and achieve economies of scale. Higher sales lead to bulk purchases with discounts, which brings down production costs. For example, lower prices can increase the rate of acceptance and allow the company to capture a substantial market share in a short period of time. If applied properly, price penetration can bring the company massive success. Price penetration is a pricing strategy where a business offers a low price initially to attract a large portion of customers and gain market share. Lifestyle and Technological Environment.Business Considerations from Globalisation.Market Segmentation, Targeting and Positioning.Risks and Rewards of Running a Business.Evaluating Business Success Based on Objectives.Information and Communication Technology in Business.Effects of Interest Rates on Businesses.Improving Employer - Employee Relations.

Penetration pricing