Why is penetration pricing more likely than skim pricing to raise a company's or a business...

Why is penetration pricing more likely than skim pricing to raise a company's or a business unit's operating profit in the long run? giver some example.

Expert Solution

Both the penetrating pricing and the skim pricing are quite different in nature. Pricing penetration is a market strategy in which the price of the product or service that it has kept low. This is a positioning technique in which the price difference to the competition is offset. On the other hand, by keeping the prices higher, skim pricing tends to earn profits at a rapid rate. When a new product that does not yet have a competition on the market is launched, skim pricing will work for a short time to bring in high profits.

Therefore penetrating pricing is a long-term operating profit strategy for the unit as it would allow the product to beat its competitors for a long time. Only so long as the commodity remained special would the skim strategy be viable. When there is a comparable competitive product on the market at lower prices, skim pricing would no longer bring large operating profits.

Rahul Sunny answered 1 year ago

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