Asked by Nicholas Pride on Jul 12, 2024
Verified
Why do marketers of new and innovative products often start out with a price skimming strategy rather than a penetration strategy?
Price Skimming Strategy
A pricing approach where a firm charges the highest initial price customers will pay and then lowers it over time.
Penetration Strategy
A marketing approach aimed at increasing market share for a product or service by entering the market with a low price.
Innovative Products
Products that introduce new features, functionalities, or technologies to meet emerging consumer needs or to open new markets.
- Clarify the relationship between market scenarios, pricing schemes, and their influence on consumer decision-making and business financial performance.
Verified Answer
PD
Pamyrjtha DesronvilJul 17, 2024
Final Answer :
In many markets, and particularly for new and innovative products or services, innovators and early adopters are willing to pay a higher price to obtain the new product or service. In this case firms would employ a price skimming strategy that sets the initial price high as opposed to a market penetration strategy that sets the initial price low. Firms employ skimming strategies to test consumers' price sensitivity. A firm that prices too high can always lower the price, but if the price is initially set too low, it is almost impossible to raise it without significant consumer resistance.
Learning Objectives
- Clarify the relationship between market scenarios, pricing schemes, and their influence on consumer decision-making and business financial performance.