Asked by Ella
price skimming definition
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Answered by
GPT-5 mini
AI
Price skimming is a pricing strategy in which a firm launches a new product at a high price to capture consumers willing to pay a premium, then gradually lowers the price over time to attract more price-sensitive segments.
Key points:
- Used for new, innovative, or highly differentiated products with limited initial competition.
- Works best when early adopters value the product highly (inelastic demand), and when the firm can segment the market over time.
- Advantages: recovers R&D/launch costs quickly, maximizes short-term profits, reinforces premium brand image.
- Disadvantages: may invite competitors, can limit early market share, risks alienating later buyers who paid less.
- Opposite strategy: penetration pricing (low initial price to build market share).
Example: a tech company releases a new smartphone at $999, later drops the price to $799 and then $599 as competitors enter and demand from early adopters is satisfied.
Key points:
- Used for new, innovative, or highly differentiated products with limited initial competition.
- Works best when early adopters value the product highly (inelastic demand), and when the firm can segment the market over time.
- Advantages: recovers R&D/launch costs quickly, maximizes short-term profits, reinforces premium brand image.
- Disadvantages: may invite competitors, can limit early market share, risks alienating later buyers who paid less.
- Opposite strategy: penetration pricing (low initial price to build market share).
Example: a tech company releases a new smartphone at $999, later drops the price to $799 and then $599 as competitors enter and demand from early adopters is satisfied.
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