Other Pricing Policies
Target costing is also effectively used in conjunction with marketing decisions to engage in penetration pricing or price skimming. Penetration pricing is the pricing of a new product at a low initial price, perhaps even lower than cost, to build market share quickly. This is useful when the product or service is new and customers have great uncertainty as to its value. Penetration pricing is not predatory pricing; the important difference is the intent. The penetration price is not meant to destroy competition. Accountants, lawyers, and other professionals with new practices often use penetration pricing to establish a customer base.