That is used in pricing a new product. Basically there are 2 alternatives in pricing a new product. One, which says for a relatively high price, is called “skimming price” and other , which calls for relatively low price, is called “Penetration price”. The product & item should have some special features involving drastic departure from accepted ways of performing the service. For example, prestige cooker ,was priced very high when, it was first introduced in the country. The product is introduced with high price coupled with large promotional expenses in the early stage & lower prices at later stages. Skimming pricing, provides funds for financing expansion scheme. Early higher prices may safeguard profits at early stage, but it may prevent quick sales to many potential buyers on whom company’s future depends. A policy of skimming pricing is adopted under conditions, such as:-
· There are a few products
· A new product is introduced in the market
· Demand is inelastic &
· A sophisticated product for use of rich & affluent customers.