Distinguish between Penetration, Skimming and Competitive pricing.
Penetration pricing means using lower initial price to capture as large a market as possible. Under penetration pricing a method, a low initial price is set to reach the mass market immediately. Skimming pricing means using a high introductory price to skim the cream of the demand. Under skimming pricing, an exporter launches a new product at a high price and later reducing the price gradually in order to tag new market segments.
Thus, skimming pricing is suitable when the buyers are not sensitive to price whereas penetration pricing is suitable when the buyers are sensitive to price.
Under competition pricing, an exporter cannot earn the margin that he decides to take. It all depends on the competition in the market. If a product is positioned in the highly competitive market, then no exporter is able to sell the goods at a price higher than that charged by the competing exporters. Thus, it is market that decides the amount of the margin an exporter can earn.
The exporter has to adjust the price quoted by him to conform to the competitive price level. In such a market situation, it is customer who sets the price and the exporter should be fully prepared to negotiate the price. This pricing policy is suitable in the case of consumer goods which have competitive market.
Exporter using the competition pricing may quote a price for the product that would discourage other exporters to enter the market or the exporter may quote the prices that are related to the price of a market leaders i.e., just below the price quoted by the market leader or higher than market leader in case the exporter has a better product.