Pricing Strategies : Price Skimming 1.3.3

Price Skimming - Charging a premium price when a product is first launched in order to maximise revenue per unit. The product can be sold in different market segments at different times. The top segment is skimmed off first with the highest price.

Example : Apple IPhone or any other electrical device

Early Adopters - People who are prepared to pay the highest price to have the latest product or service on the market

Objective : Maximise profit per unit to achieve quick recovery of development costs.

Works well for products that create excitement amongst "EARLY ADOPTERS". Or for products that are new and face little or no competition.

This is type of pricing strategy is typically used in the introduction stage of the product life cycle.

DRAWBACKS

1) CANNOT LAST FOR LONG
Price Skimming as a strategy cannot last for long as competitors will soon launch rival products that put pressure on the price.

2) DISTRIBUTION CAN BE A CHALLENGE
Distribution (Place) can also cause a problem for an innovative new product. It may be necessary to give retailers higher margins (higher guaranteed profit per unit sold) to convince them to stock the product, reducing the improved margins that can be delivered by price skimming.

3) History
If the company has a history of price skimming, then customers will never buy a product when it is newly launched, they would rather wait a few months and buy the product at a lower price.