Discuss in detail why penetrating pricing is more likely than skim pricing to raise a company’s or a business unit’s operating profit in the long run?
The nature of both the penetrating pricing and skim pricing are completely different. Penetrating pricing is a market strategy in which the price of the product or service it kept low. This is a positioning strategy in which the competition is countered with price difference. On the other hand, skim pricing is aimed at earning profits at a speeding rate by keeping the prices higher. When a new product is launched which does not have a competition in the market yet, skim pricing may work for a short time to bring in high profits.
Penetrating pricing is therefore, a long term unit operating profit strategy as it would enable the product to beat its competitors for a long time. The skim strategy would only be viable as long as the product remains unique. The time there is a similar competing product with lower price in the market, skim pricing would no longer be able to bring considerable operating profits.