Market Skimming is basically a marketing strategy that deals with pricing of a product. In this strategy, a producer sets high price for a new product. Normally this pricing strategy is used for high end products like mobile phones, perfumes etc. The objective of this strategy is to reap the maximum revenue from the market before any kind of substitute product is available. After some time when some competitors enter the market, the producer normally lowers the price to capture the rest of the market.
On the other hand, Market Penetration is a strategy which is used by a company to increase the sales of its current prices. The company can lower the prices in this strategy to increase the users of its product or can also come up with bundle offers or variations of existing products.
These are two new product pricing strategies namely market skimming and market penetration. While market-skimming, in its initial phases, sets up high prices, in order to "skim" the revenue layer by layer from the market. It is normally suitable for situations when the quality and image of the product justify and support the premium price. Also when an adequate number of buyers are willing to buy the product at the proposed premium price by the company. Market skimming is also suitable when the cost of production of a small volume of products is not that high. Lastly, market skimming is applicable when the competitors of the product are incapable of accessing the market conveniently.
As for market penetration, this pricing strategy involves setting a low initial price in the attempt of penetrating the market on a quick yet productive basis in order to win a large chunk of the market share. In contrast to market skimming, market penetration works when the market of the respective product is highly price sensitive or the production and distribution costs share an inverse relationship with the sales volume. Another suitable situation for market penetration would be when low price plays a prime role in defeating and keeping out the competition.
Market penetration is low price strategy in which a lot of competitors are in the market. And on the other hand product is so much price conscious.
On the other hand marketing skimming is a initial a high level pricing. This strategy is mostly used by innovators and by monopolists