Skimming vs penetration pricing free#

For example, a customer may switch back from Netflix to Hulu or Hotstar once the free one month subscription period is over. Otherwise, the customers would switch back to the competitor once the introductory benefits are utilized. Such companies are also successful at retaining a large percentage of the customers they gain if their services are reasonably priced and the benefits included in the subscription are as good or better than the competitors. For example, a newly launched online video streaming service entices customers to purchase a subscription by giving the first month free. However, the key thing is to retain market share and the acquired customers. If used correctly, penetration pricing can be a great marketing strategy and help gain market share faster. On the one hand, this strategy is aimed at growing the awareness regarding the product and brand through unusually lower prices and on the other, it aims to help the product penetrate the market and grow customer base. Usually, this pricing is utilized during the introductory phase and prices rise gradually as the product gains market share. Penetration pricing is also seen as a marketing strategy whose main aim is to lure customers away from competing products and brands by offering a product/service at lower prices. Based upon the level of competition, product quality, demand, and other factors companies can decide whether to use Price Skimming or penetration pricing when launching a new product. Products with higher quality often sell at higher prices. Quality is also an important factor related to pricing. Based upon market conditions, level of demand and consumer demographics, pricing strategies that companies use can vary. Many times sellers introduce a product or service at a very low price but as an introductory offer mainly and the price rises gradually. It is mostly the case when the product is not new to the market or when the level of competition is very high. Several times, companies do not have a better choice than to price their products lower than the competitors to gain market share faster. Every company wants its product to be successful but while gaining market share amid fierce competition can make it challenging, the key to success often lies in how you price the product.

Often when companies launch a new product, pricing is a big challenge before them. Penetration Pricing versus Price Skimming: Advantages and Disadvantages