With respect to marketing mix, price is the least attractive element to be considered. Marketing companies should really target on producing as high a margin as possible. The debate is that the merchant should change item, location or advertisement in some way before resorting to minimization of price. Anyhow, price is a flexible component element of the mix as we shall see.
The rate issued for goods and services is set artificially low in order to earn market share. After achieving, the price is increased. This strategy was first used by France Telecom and Sky TV. Enterprises need to grab the opportunity to hold on to customers, so they offered free telephones or satellite dishes at minimal rates. And eventually, people signed up for their services.
After getting large number of subscribers, rates gradually go up. For example, Tata Sky or any cable or satellite company, when there is a premium movie or sporting event rates are at their highest. Thus, they shift from penetration strategy to more of a skimming or premium pricing strategy.
Here, the rates of marketing and advertising a product are kept as low as possible. Supermarkets often have economy brands for soups, spaghetti, biscuits, etc.
Budget airlines are popular for keeping their overheads as low as possible and then providing the customer a comparative lower rate to fill an aircraft. The first few seats are sold at a very low rate almost an advertisement rate price and the middle majority are economy seats, with the highest rate being sold for the last few seats on a flight i.e. in the premium pricing strategy. During times of recession, economy pricing records more purchase.
Price skimming sees an enterprise charge a higher rate because it has a substantial competitive benefit. However, the benefit tends not to be sustainable and reasonable. The high cost tempts new competitors into the market, and the rate inevitably decreases due to increased supply.
Producers of smart phones used a skimming strategy. Once other producers penetrated into the market and the smart phones were manufactured at a lower unit price, other marketing approaches and pricing approaches were executed. New products were launched and the market for smart phones earned a reputation for innovation.