Describe a skimming price and a penetration price

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Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so that families could choose what kinds of non-toxic, all natural products they'd like to use and get them in a bundle. Families can choose all kinds of products from food, to hygiene necessities and cleaning supplies. Suppose that they are thinking of expanding their business into five domestic markets - Phoenix, Dallas, Chicago, New York, and Atlanta. Assume that their primary goal of business is to maximize economic profits although they want to do business honestly.

a. You are a business adviser for Alba and Gavigan. Describe a skimming price and a penetration price, and advise them whether they should charge a skimming price or a penetration price, with supporting reasoning for and against each pricing alternative.

b. Are they likely to make economic profits initially? Can they continue to make economic profits in the longer term? Why or why not? Discuss.

c. What advice would you give to Alba and Gavigan to help them make more profit in the longer term?

Reference no: EM13186488

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