Chapter 12, Problem 12.8QA

Summary Introduction

To explain: The type of products best suited for price skimming and penetration pricing.

Introduction:

Price skimming:

It is a pricing methodology where a firm will place the highest initial price the customers will pay for the product. When the demand of those customers is satisfied, the price will be brought down to attract the price-sensitive segment of the customers.

Penetration pricing:

It is a pricing methodology where a firm will place the price of a product as low as possible to attract a larger customer base. The increased sales volume will enable a firm to obtain merchandise at an economical cost and in turn, will be able to generate a higher profit percentage.