Discussion 6 (1)

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Discussion 6 – Pricing a) Provide examples of skimming and penetration pricing strategies. At what stage of the product life cycle these strategies work well? To what extent do you believe that adopting such strategies has helped the companies attract new customers? Companies tend to use skimming and penetration pricing strategies when entering new markets, and when launching their products. The use of price skimming can be observed in products like Apple iPhone, Sony PlayStation 3, and 4K/8K Ultra High Definition televisions (Economics, n.d.). The products’ market entry price was high, targeting consumers with inelastic demand, but the prices fall later to increase the customer base. Amazon, Netflix have used the penetration pricing strategies, and food and beverage companies like Kroger and Costco to increase demand for their products and attain a large market share. Both skimming and penetration pricing stages work best at the introductory product stage. Firms use skimming pricing, especially for particular consumer segments with inelastic demand, less market competition, and when consumers perceive products to be of high quality. The penetration pricing is used in most high competitive markets and where there is high price- elasticity to demand. However, companies can apply the price penetration pricing strategy at the growth stage to increase its customers. I believe both pricing strategies are beneficial to companies in attracting new customers. For instance, Apple has successfully obtained a large market share and has acquired many customers over time. Also, Amazon serves at a global level and, through services like Amazon Prime and offering discounted delivery rates, has attracted new customers (Economics, n.d.). b) Under what circumstances is Everyday Low Pricing (EDLP) likely to work? Does it work better for retailers or manufacturers? Is it more applicable for urban or rural areas? EDLP, consistent low pricing, is likely to work when a low-price position is maintained throughout and high growth rates when companies are extremely cost and process efficient, when companies consistently offer quality products and understand customer needs, focus on the core products, focus advertisements on the only price, and stick to EDLP. EDLP works better for both retailers and manufacturers. For instance, EDLP has worked well with Wal- Mart retailers for many years. Being a large retailer, Wal-Mart has obtained a large market share and built customer loyalty through consistent EDLP. For manufacturers like the Honda, use of EDLP was successful in its product, the Wave motorbike (Simon, 2016). I, therefore, believe it can work for both retailers and manufacturers. EDLP is mostly applicable in urban areas where there is a vast array of consumers and many competitors. References Economics. (n.d.). Price Skimming. https://www.economicshelp.org/blog/147806/economics/price-skimming/ Economics. (n.d.). Penetration Pricing. https://www.economicshelp.org/blog/glossary/penetration-pricing/ Simon, H. (2016). The fine line between when low prices work and when they don’t. Harvard Business Review . https://www.google.com/amp/s/hbr.org/amp/2016/03/the- fine-line-between-when-low-prices-work-and-when-they-dont

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