Skimming Vs Penetration Pricing and what the author of our Mangerial Accounting Text has to say !

So, most of us don't really think it's a good idea to study Ronlad Hilton's Managerial Accounting. Same is my case. But amazingly, though I couldn't learn much from Hilton in Managerial Accounting but when searching for Pricing strategies found a very good tip by Hilton

When To Choose Which Pricing

"The decision between skimming and penetration pricing," said Hilton, "depends on the type of product and involves trade-offs of price versus volume. Skimming pricing results in much slower acceptance of a new product, but higher unit profits. Penetration pricing results in greater initial sales volume, but lower unit profits."

Skimming Pricing

It's a strategy wherein the initial price for the product is set quite high for a relatively short time after introduction. Even though sales will likely be modest with skimming, the profit margin is great. This pricing approach is most often used for high-prestige or otherwise unique products with significant cache. Once the product's appeal broadens, the price is then reduced to appeal to a greater range of consumers.

Penetration Pricing

Penetration pricing is a strategy employed by businesses introducing new goods or services into the marketplace. With this policy, the initial price of the good or service is set relatively low in hopes of "penetrating" into the marketplace quickly and securing significant market share. "This pricing approach," wrote Ronald W. Hilton in Managerial Accounting, "often is used for products that are of good quality, but do not stand out as vastly better than competing products."