Given below are two statements one is labelled as Assertion (A) and the other is labelled as Reason (R). Assertion (A): The skimming price policy is adopted where close substitute of a new product are not available. Reason (R): This policy requires fixing a lower initial price designed to penetrate the market as quickly as possible and is intended to maximize the profit in the long run. In the light of the above statements, choose the most appropriate answer from the options given below:
Skimming Price Policy: Assertion and Reason Analysis
The question asks to evaluate the correctness of two statements regarding pricing policies.
Analysis of Assertion (A)
Assertion (A) states that the skimming price policy is adopted when close substitutes of a new product are not available. This statement is correct. Skimming pricing involves setting a high initial price for a new, innovative product. This strategy is effective when there are few competitors or close substitutes, allowing the company to capture maximum revenue from early adopters willing to pay a premium before competition emerges.
Analysis of Reason (R)
Reason (R) describes the pricing policy as requiring a lower initial price designed for quick market penetration and long-term profit maximization. This description accurately defines a penetration pricing strategy, not a skimming strategy. Penetration pricing uses low initial prices to gain market share rapidly. Therefore, Reason (R) is incorrect as a description of the skimming price policy.
Conclusion
Based on the analysis:
- Assertion (A) is correct.
- Reason (R) is incorrect.
This corresponds to Option 3.
Important Questions from Pricing decisions
Penetration pricing strategy delivers results:
(A) Where price quality association is weak
(B) When the product is perceived as a 'high technology' product
(C) When the market is characterised by intensive competition
(D) When the firm uses it as an entry strategy
Choose the most appropriate answer from the options given below:
In which of the following pricing policies, a firm charges higher initial price for the product and reduces it over time as the demand at higher price is satisfied?
Pricing practice of setting a price target and then developing a product that would allow the firm to maximise total profit at that price is called:
Which among the following is not an internal factor in pricing decisions?
Match List I with List II:
List I (Pricing Strategies) List II (Description) (A) Ramsay pricing (I) Setting a high price when a product is first introduced and gradually lowering price as it gains scale (B) Price skimming (II) Firm charges lower price (than the ongoing price) to gain market entry (C) Cost plus pricing (III) Price deviations from marginal cost should be inversely proportional to price elasticity of the product (D) Penetration pricing (IV) It is full cost pricing strategy that also includes mark up for target return, degree of competition, price elasticity and availability of substitutes. Choose the correct answer from the options given below:
