penetration / skimming

Penetration and skimming each describe a pricing strategy for the launch of new products.

The penetration strategy is based on a crowding out of competition and rapid market penetration. Prices below the average market price are used to deter new competitors from entering the market or to drive them out of the market. If, following the crowding-out strategy, the company’s own market shares are large enough, prices can gradually be raised again in order to achieve higher profits. The penetration strategy is mainly suitable for products that are sold in high volumes.

A contrary strategy is pursued by skimming. A high margin is achieved through an above-average price. Costs incurred, such as those for research and development, are thus quickly amortized. Skimming is particularly suitable for products that are difficult to compare or have a high image value.

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