MarketingLesson 4 of 4 in the course Pricing Products and Services

New-Product Pricing: Skimming, Penetration, and Break-Even

5 flashcards · 5 quiz questions · 5 match pairs · 3 fill-in sentences · English

Save course
Lesson progress
0 / 5

Your progress is kept in this browser only.Sign up to save it

Summary

Launching a new product often requires substantial investment in research, development, and production before the first sale. A pricing strategy can help a business recover those costs, attract customers, and work toward profitability.

Price skimming is a new-product strategy in which a business initially sets a high price and lowers it over time. The business first targets customers willing to pay more, then reduces the price to attract additional customer segments.

All flashcards

What is price skimming?
A new-product strategy that begins with a high price and lowers it over time to attract successive customer segments.
Why might a company use market penetration pricing?
A low initial price can make a new product accessible to many customers and encourage broad trial from the start.
What does the break-even point mean?
It is the sales quantity at which total revenue equals total costs, so the business has neither profit nor loss.
How is break-even quantity in units calculated?
Divide fixed costs by the contribution per unit: unit price minus variable cost per unit.
How can a high initial price benefit a new product's business?
It may help the business recover development costs sooner.

Quiz questions

  1. Which pricing pattern defines price skimming for a new product?Answer: The price starts high and is lowered over time.
  2. What is the main objective of market penetration pricing?Answer: To attract many customers across market segments from the start.
  3. A firm launches an innovative product with limited competition and wants to reach customers willing to pay a premium first. Which strategy best fits?Answer: Price skimming
  4. What is one possible trade-off of setting a very low introductory price?Answer: The business may earn less revenue per sale at first.
  5. If a business sells more units than its break-even quantity, what can those additional sales contribute to, assuming price and relevant costs stay unchanged?Answer: Profit

Based on Principles of Marketing by Dr. Maria Gomez Albrecht, Dr. Mark Green, Linda Hoffman (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

More in Marketing

All Marketing lessons
MarketingPricing, Customer Value, and Responsible Pricing Decisions5 flashcards · 5 quiz questions · 4 gamesPlay free →MarketingADAMS Criteria for Evaluating Market Segments5 flashcards · 5 quiz questions · 4 gamesPlay free →MarketingCultural, Social, Personal, Psychological, and Situational Buying Factors5 flashcards · 5 quiz questions · 4 gamesPlay free →MarketingConsumer Buying Behavior: Black Box, Decision Types, and Environment5 flashcards · 5 quiz questions · 4 gamesPlay free →MarketingMarketing Fundamentals: Customer Needs, Value, and the Marketing Process5 flashcards · 5 quiz questions · 4 gamesPlay free →MarketingEvolution of Marketing Concepts: From Production to Societal Marketing5 flashcards · 5 quiz questions · 4 gamesPlay free →