Question
When deciding between penetration pricing and price skimming, several factors should be considered. First, the nature of the market: if it's highly competitive with similar products, penetration pricing might be more effective to gain market share. Second, the product's life cycle: price skimming is often used for new, innovative products where a company can charge higher prices due to lack of competition. Third, the product's value to customers: if the product offers significant value, price skimming can be used to reflect this. Lastly, the company's long-term plans: if the goal is to quickly gain market share, penetration pricing might be the best strategy.
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This means considering two options: penetration pricing and price skimming. "Penetration pricing is a way to get a foothold in a market. Penetration pricing must be limited, either by cutting it off at a certain date or offering it to a limited number of people. If you get stuck on penetration pricing, you'll find yourself in no man's land. You may have plenty of clients, but they won't be paying you what you're worth. Price skimming can seem like a scary strategy. Maybe you're worried that if you try it, people will think you're overcharging and go elsewhere. That's a natural response, but if you get to market with a product that delivers great value before anyone else, it's important to remember that there is no agreed-upon fair price," Dill says.
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