Sunday, June 21, 2009


(3).Market skimming pricing

Market skimming pricing involves charging high prices when a product is first launched and spending heavily on advertising and sales promotion sales.
The aim of Market skimming is to gain high unit profits early in the product’s life. High unit prices make it more likely that competitors will enter the market than if lower prices were to be charged.

Such a policy may appropriate in the following circumstances
  • Where the product is new and different, so that customers are prepared to pay high prices so as to be one up on other people who do not own it.
  • Where the strength of demand and the sensitivity of demand to price are unknown it is better from the point of view of marketing to start by charging high prices and then reduce them if the demand for the product turns out to be price elastic than to start by charging low irises and then attempt to raise them substantially if demand appears to be insensitive to higher prices.
  • Where high in the early stages of a product’s life might generate high initial cash flows. A firm with liquidity problems may prefer market-skimming for this reason.
  • Where the firm can identify different market segments for the product, each prepared to pay progressively lower prices. If product differentiation can be introduced, it may be possible to continue to sell at higher prices to some market segments when lower prices are charged in others. This is discussed further below.
  • Where products may have a short life cycle, and so need to recover their development costs and make a profit relatively quickly.
(4).Premium pricing.

This involves making a product appear ‘different’ so as to justify a premium price the product may be different in terms of, for example, quality , reliability , durability, after sales service or extended warranties. heavy advertising can establish brand loyalty which can help to sustain a premium and premium prices will always be paid by those customers whey blindly equate high price with high quality.

(5).Pricing to recover an investment.

An alternative pricing objective that is worth mentioning is to recover the investment in a new product or service as quickly as possible, that is to achieve a minimum payback period. The price is set so as to facilitate this. such an objective would tend to be used in the following conditions.
  • The business is high risk
  • Rapid changes in fashion or technology are expected.
  • The innovator is short of cash

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