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For most companies the market is a series of segments, each warranting a distinct marketing mix package which means separate pricing treatment. Pricing for different market segments means considering the possibility of price skimming, using penetration pricing or combining these two to recover cash early. It is also necessary to determine the appropriate level for the company, given customer and competitive circumstances.

Companies sometimes face the opportunity in the introductory stage of the product life cycle of skimming the market by pricing high to maximize short-run unit contribution or penetrating the market by pricing low to maximize unit volume and thereby pre-empt competition.

Sometimes the decision is to combine both approaches over time in a sequenced way as the life cycle evolves. Each of these three pricing strategies is used by firms when introducing new products to a market.

The choice of strategy depends on the firm’s objectives and the circumstances in the market. Penetration pricing and price skimming are distinct strategies whereas early cash recovery pricing may refer to a high or a low price depending on market circumstances.