Market penetration and market skimming price

Market penetration and market skimming price are well known terms in the field of finance and economics. These terms are used for the products and services in the market. Let’s understand the difference between market penetration and market skimming price.

Penetrating pricing is done by setting low prices initially to increase customer demand and to get market share. When the customer accepts the product, overall demand for the products/services increases. On the other hand, skimming pricing is adopted by setting high prices from the start to get high profit margins. The profit is earned by taking first mover advantage.

However, once the competitors start producing same products or services, the prices are decreased to retain the customers. Further, it’s logical to opt for penetrating price when the product demand is elastic whereas skimming is done when the product demand is inelastic, and the customers are willing to pay high prices.

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Skimming and penetration pricing examples

Skimming prices are when a technological company who set a higher price for its newly launched mobile phone. On the other hand, example of penetration pricing includes an online service provider grants a free trial for one month. So, there is compromise on the revenue/profit. However, market share is increased.

So, the purpose of penetration pricing is to maximize market share by offering low price while the skimming price purpose is to maximize profit margins by offering high price. Number of sales is high in penetration pricing due to a large number of customers drawn towards the product for its low price. On the contrary, the number of sales in skimming strategy is low because only the customers who are willing to pay differential price are limited, but it has high profit margin due to high price.

Let’s have a detailed understanding of the concepts for penetration and skimming price.

Penetration pricing strategy

Penetration pricing strategy involves setting low prices of the products for attracting a high number of customers to increase sales and market share. Although, this strategy usually does not lead to high profits in the beginning it can create a loyal customer base. The strategy works by first increasing the demand of customers for the product. Once the demand is increased, the price is increased. Market penetration pricing is normally adopted for new products or services to make their place in the market.

 This type of strategy is used to increase market growth from the start. Despite the profits being low, a high number of sales can overcome or compensate for it. Penetration pricing further involves two sub techniques, rapid and slow penetration. A rapid penetration strategy is the one where a high promotion is done but the prices are kept low. Its opposite can be the slow penetration strategy where a low promotion is done by keeping the prices of products low as well. 

Penetration pricing example

Netflix can be one the most well-known example of a penetrating pricing strategy. If you or your friends are users of it, you might have heard about the Netflix one-month free subscription. This indicates that the company uses a penetrating strategy for its prices and has successfully attracted millions of users.

Another example can be Starbucks. Starbucks uses a penetrating pricing strategy to attract customers for its new seasonal drinks. This helps it making people taste the variety and once they get used to it the price is set to the normal.

Skimming pricing strategy

Skimming pricing is the opposite of penetrating, it involves setting high prices in the beginning and slowly reducing them to attract more people. Initially, this type of strategy generates profitable sales but the sales are usually small in number.

This type of strategy is adopted when customers do not find any other alternative to be the similar product. Skimming pricing is used for highly specialized products that are valuable to the customers and they are willing to pay high for them. Otherwise, it can create a fertile ground for competitors to reduce their prices and attract customers. So, the strategy works best when the customers are highly interested in the product or service that you are offering.

Skimming pricing example

Apple iPhone can be one of the most famous examples of brands using a skimming strategy. Apple first launched its products at a higher price knowing that people will buy the product. Later on, when the competitors start launching their competitive products, it reduces the price. 

PlayStation 5 by Sony when newly launched had a higher price, but as the competition grows its price declined. This is seen by analyzing the prices of previously launched PlayStations. Hence, it also uses skimming pricing.

Difference between penetration pricing and skimming pricing

Both the penetration and skimming pricing strategies are used for the new entrant products and services, but both have many differences that must be understood to avoid any undesired consequence. These differences have been discussed below:    

Basic Meaning

The basic meaning of adopting a penetration strategy is to set low prices for the products and services to get a high market share by targeting a large number of customers. While on the other hand, the skimming strategy keeps the prices high from the start and cuts them down slowly as the competition grows.  


The ultimate goal of both the techniques is to make the new product a success, but their strategic objectives are different. The objective or purpose of the penetrating strategy is to maximize the number of sales by offering a low price to the customers. Whereas, the purpose of the skimming strategy is to maximize profits from the start by charging higher prices to the customers.

Product Demand

One of the reasons that differentiate penetrating from skimming strategy is the customer’s product demand. The former is used in an elastic demand because customers buy products due to the low price, while the latter is used in an inelastic demand of the product because customers are willing to pay higher and price does not have much impact on the demand.

Number of Sales

The penetration pricing gets you a higher number of sales usually in bulk because of lower prices. Whereas, skimming pricing usually achieves a lower number of sales because of a higher number of sales. So, the quantity of sales also varies in both strategies of pricing.

Profit Margins

Profit margin is also another reason that differentiates the two strategies. Penetration pricing usually yields low-profit margins because of low prices. Whereas, the skimming strategy generates high-profit margins because of the high price of products.

Market Segmentation

Skimming pricing targets the upper class where people are willing to pay the differential price for the products belonging to high brands. On the contrary, penetrating price does not target this segment and it pays attention to the customers who are willing to get products with lower prices.


Both the pricing strategies, penetration, and skimming are used for the products that are newly launched in the market. However, the target of both pricing is different. Penetration pricing strategy is used when there is less differentiation of the product, and people will be drawn towards the product because it is offering a lesser price than the competitors. Whereas, the skimming pricing strategy offers a high price at the beginning of the product launch to attract the customers who are willing to pay high. It works the best when there is no competition in the market against your product.

The major points of difference are in their meaning, profit margins, market segmentation, number of sales, product demand, and the main objective. Penetrating strategy targets high sales at the beginning and the skimming strategy target high profits in the beginning.

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