Question 1 (c)
Skimming and penetration pricing compared and contrasted, with examples
9 marks
- Time to write
- About 18 minutes
- Topic
- Pricing
Question
Question 1 (c) · 9 marksCompare and Contrast Skimming Pricing with Penetration Pricing. Provide examples of companies or products that use these strategies.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- CompareCompare in a table, basis by basis.
- examplesExamples are asked for: one short example with each point.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Meaning of skimming and penetration pricing 3 marks 5 min
- 2 Comparison and contrast 4 marks 7 min
- 3 Examples 2 marks 4 min
- Check: every ask answered, key terms underlined 1 min
Easy marks
- Step 1 opens with the meaning: a one-line definition, the quickest mark in it.
Short on time? Trim steps 1–3 evenly rather than skip one: each is capped at its own marks.
Try it first. About 18 minutes for 9 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Skimming pricing means launching a new product at a high price aimed at the buyers who want it most and mind the price least, and then bringing the price down in steps to draw in buyers who care more about price. It works when the product is new or clearly superior, buyers in the first segment value it highly and are not price-sensitive, competitors cannot quickly copy it, and a high price supports a premium image.
1Launch week: the earbuds sit on a pedestal, and the keenest buyers pay the full bag.
Skimming pricingLaunching a new product at a high price aimed at the buyers who want it most and mind the price least
2The calendar turns, rivals arrive—the price steps down and the queue widens.
SkimmingA skimming price is usually cut in steps as competition grows
3Penetration is the opposite bet: a street price from day one, and the whole bazaar adopts it.
Penetration pricingLaunching a new product at a low price so that it spreads fast and the firm builds a large base of buyers early
Penetration pricing means launching a new product at a low price so that it spreads fast and the firm builds a large base of buyers early. It works when the market is price-sensitive, unit costs fall as volume rises, the low price discourages competitors, and the firm can sustain the low price.
Similarities: both are pricing strategies for new products; both aim at long-run profit; both depend on demand, competition and costs; and both may be modified over the life cycle. A skimming price is usually cut in steps as competition grows, so a product skimmed at launch may later sell at a mass-market price; that later cut is still part of skimming, not penetration pricing, which sets the low price at launch.
Differences:
| Basis | Skimming pricing | Penetration pricing |
|---|---|---|
| Launch price | High | Low |
| Objective | Recover investment quickly; high margin per unit | Rapid market share and volume |
| Target buyers | Innovators, early adopters, less price-sensitive | Mass market, price-sensitive |
| Demand | Relatively inelastic | Highly elastic |
| Competition | Entry is difficult for a time | Entry is easy, so a low price is used to deter it |
| Profit pattern | High early profits, declining later | Low early profits, rising with scale |
| Brand image | Premium, innovative | Value for money |
| Later price | Gradually reduced | Held, or raised slowly |
| Risk | Attracts competitors; may limit adoption | Low margins; hard to raise prices later |
Skimming: Apple's new iPhone models, launched at premium prices that come down once the next model arrives; game consoles such as Sony's PlayStation at launch; new medicines under patent; premium televisions with the latest display technology.
Penetration: Reliance Jio, which entered the Indian telecom market in 2016 with free introductory voice and data plans and then very low tariffs, to build a huge subscriber base; new FMCG brands launched with low prices and introductory offers; streaming platforms offering low-priced mobile-only plans in price-sensitive markets.
Skimming maximises early margins from buyers who value novelty; penetration maximises adoption and share. The choice depends on the product's distinctiveness, buyers' price sensitivity, costs and competition. A firm should also consider its brand image, production capacity and how quickly rivals can copy the product before choosing between them.
Where the 9 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Meaning of skimming and penetration pricing | 3 |
| 2 | Comparison and contrast | 4 |
| 3 | Examples | 2 |
| Total | 9 |
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