Full Answer
a pricing approach in which the producer sets a high introductory price to attract buyers with a strong desire for the product and the resources to buy it, and then gradually reduces the price to attract the next and subsequent layers of the market.
Market-Skimming Pricing (Price Skimming) Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.
Price skimming examples Electronic products – take the Apple iPhone, for example – often utilize a price skimming strategy during the initial launch period. Then, after competitors launch rival products, i.e., the Samsung Galaxy, the price of the product drops so that the product retains a competitive advantage.
Price skimming covers the costs of innovation and provides money for product development. Early-adopters naturally become the word of mouth marketing channels. It allows you to segment the market and target all at different price levels.
Skimming pricing involves setting the highest initial price that customers really desiring the product are willing to pay when introducing a new product. 2. These customers: - Are not very price sensitive. - Weigh the new product's price, and quality against the same characteristics of substitutes.
Skimming is a useful strategy in the following contexts: There are enough prospective customers willing to buy the product at a high price. The high price does not attract competitors. Lowering the price would have only a minor effect on increasing sales volume and reducing unit costs.
Price skimming examples are mostly seen among tech giants, like Apple, Samsung, Sony, and other companies that develop new technologies that they know are high in demand.
In simple terms, the business charges the highest price when the offering is launched and is new in the market, and then reduces the price over time. Price skimming suits well for certain industries more than the others. For example, tech companies usually use price skimming.
Skimming is reading a text quickly to get a general idea of meaning. It can be contrasted with scanning, which is reading in order to find specific information, e.g. figures or names.
Conditions where price skimming desirable Where a company wants to maximize its revenue. When initial cost of production is very high which has to be recovered as early as possible. Where the products are of specialty goods such as fashion-oriented goods.