Skimming and penetration pricing essay

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Skimming and penetration pricing essay

Irrespective of the context, companies need to set their pricing strategy to recoup capital investment, make a profit margin above fixed and variable costs, limit the negative effects of elasticity of demand, match the right stage in the product lifecycle, fulfill company objectives, and differentiate themselves from competitors.

In international markets, firms will also have to consider local market conditions, avoid being charged with dumping, mitigate currency risks, engage in transfer pricing between subsidiaries, transact with other governments through countertrade, and minimize the effects of price escalation.

Generic Factors affecting Price Be it a family-run agri-business in a developing economy or an innovative software provider born global, all for-profit firms share cost, demand, competition, and company objectives as challenges when setting prices.

Examples of industries where capital intensive industries include aviation, telecommunications, oil and gas, computers, and pharma Maverick, To illustrate, a logistics firm may see its orders drop as gas prices go up. Examples of businesses for which demand is near inelastic tend to be necessities with few or no substitutes, such as gasoline or utilities Johnson, for consumers, or compliance e.

In contrast, demand can be highly volatile in the hospitality industry as leisure travel is a non-essential expense and the inventory cycle for a hotel is only 24 hours Wood, Nature and intensity of competition can also push prices down Porter, if rivals offer discounts, have a more active sales force or better reputation.

The airline industry, long-distance telephone operators, and online insurance brokers are examples of firms where price wars are common. To win a Skimming and penetration pricing essay war, Rao, Bergen and Davis recommend competing on quality, forming partnerships, launching innovative products or using complex pricing decisions such as bundle pricing or loyalty schemes.

The lifecycle stage of the product also influences how much the business can charge. Common for high-tech, designer fashion, hardcover books, or luxury cars Maguire,skimming brings in high return on investment, maintains brand prestige, and gathers useful feedback from early adopters Dawson, However, price skimming is best 2 suited for highly differentiated, superior products, and it usually cannot be maintained for a long time without continuous innovation, which leaves most firms with the option of penetration pricing.

However, introductory prices are not always a guarantee of success, as Bhasin reveals through the case study of Mokai, a Danish brand of cider drink see photo. Despite low initial prices, the product failed to gain momentum among female Tanzanian drinks as Mokai did not invest sufficiently in brand awareness and partnered with unreliable distributors Bhasin, Figure 1 Mokai Cult, Cider from Denmark.

A start-up food delivery business such as Tummykart Hyderabad kept prices low and focused on reaching break-even Choudhury, within 6 months in order to attract the next round of funding.

In sectors plagued by overcapacity such as chemicals, Rohm and Haas — a Dow Chemical Company affiliate — is forced to apply survival pricing on commoditized products and hopes to recover some margin from servicing niche segments Henrie, Global Pricing Issues In addition to the general factors presented above, international firms face a host of other considerations, some stemming from the complexity of managing multi-country pricing, others from legal or market constraints.

Price escalation may result in a considerably higher final price overseas compared to the domestic environment Price Escalation,to cover tariffs, insurance, freight, VAT, and intermediary margins. Exporters attempting to control final prices have several options requiring varying levels of investment and risk.

Imported Cars in the Philippines Shipping and handling can add several percentages to the cost, especially in the case of multi-carrier haul of bulky, low-value items. Although most firms would substitute for cheaper, albeit slower modes of transport such as ocean liner, more creative businesses have reduced the size of pillows and diapers through air suction Johansson, To limit how many times VAT and intermediary margins are added, the exporter may cut out one or more middlemen, e.

Under special conditions, Forman and Lancioni recommend a barter strategy to neutralize price escalation for industrial products in the chemical, transportation, and manufacturing industries. In their effort to manipulate prices, however, MNCs may be flagged for dumping, that is selling products in overseas markets below production costs or lower than home-market prices Dumping, On a macro-level, some concerns have arisen as governments weigh anti-dumping measures against lowering FDI inflows Sibanda, To illustrate, the study argues that the South African government should expect lower FDI investments in response to its excessive anti-dumping duties on Brazilian chicken imports and local content rules on the Walmart-Massmart merger.

When faced with multi-country decisions, firms may choose between polycentric, ethnocentric, and geocentric pricing strategies Johansson, Standardized prices may be easy to manage due to low complexity, but are likely to create opportunity losses as they disregard differences in shipping costs, local disposable income levels, and competitive intensity What Pricing Policy Should a Global Company Pursue?

Highly adapted prices can make the most of local conditions, but at the cost of sabotaging price optimization at supra-national levels.

If there are major price differences in relatively close markets, such as UK v. Eurozone for car imports, manufacturers need to balance financial gains with the threat of parallel imports.

Skimming and penetration pricing essay

Such strategies have sufficient flexibility to keep local managers motivated and to take local issues into account e. Unlike ethnocentric pricing, market-responsive strategies help to curb gray trade by minimizing price differentials between neighboring countries Johansson, A potentially lucrative tool against parallel imports is built-in modularity, with the added benefit of closely matching local preferences and, in the process, charging a premium above undifferentiated imports.

Foreign exchange risks constitute another obstacle for global pricing; to counteract volatility, firms may agree on spot or forward rates to protect both buyer and seller Forward Rate Agreement Alternatively, they can use hedging or engage in currency swaps, in which one party exchanges an equal amount of the other currency to become impervious to devaluation Currency Swaps Depending on the direction in which currencies move, the firm should adapt its prices to maximize returns.Key Words: Penetration Pricing, Customer Loyalty, Strategy, Performance T.

pricing is handled by division and product – line managers. In industries where pricing is a key factor, and concluded that skimming pricing and penetration pricing relate to the company's corporate and.

Chapter Pricing Strategies. From slides of Marketing class at UW Foster Business School. STUDY. PLAY. Pricing Strategies.

Skimming and penetration pricing essay

1) Market-skimming pricing 2) Market- penetration pricing. Market-Skimming Pricing. a strategy with high initial prices to "skim" revenue layers from the market Market-Penetration Pricing.

Companies bringing out a new product can choose between two price strategies: market-skimming pricing and market-penetration pricing.

Penetration Vs. Skimming Marketing Strategies | Your Business

Distinguish between the two. Price skimming for new or innovative product, the price at the beginning is high and customers are not price sensitive while Price penetration sets a low price at the beginning to.

Penetration pricing and skim pricing are the two broad pricing strategies commonly used by companies when opening new stores or launching new products.

Example Essay on Pricing Strategy. In our marketing plan for SpofoKnife we would consider several pricing objectives that would be grounded on the three C’s of the pricing strategy – customer value, competitors’ prices, and our costs (Caltech).

Penetration vs Skimming Pricing Strategy Essay. The pricing strategy for a new product should be developed so that the desired impact on the market is achieved while the emergence of .

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