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Profitability is the primary goal of any business, small or large. To achieve this, businesses employ different marketing strategies to penetrate the market and secure a larger market share. One such strategy is price skimming. It offers short-term high profits while still meeting consumer needs and providing an acceptable product. The key is finding the right price point to skim off the market without being too aggressive or too low, which could result in a loss.
In this article, we will be discussing the definition of price skimming, its strategies, and examples. So if you are interested in learning more about this marketing strategy, then read on!
What is Price Skimming?
Price skimming is a pricing strategy in which a company charges a high price for a new product or service during the introductory period, and then gradually lowers the price as more competitors enter the market or as customer demand declines. The goal of this strategy is to maximize profits in the short-term by “skimming” the market of its most willing and able to pay customers.
A company employing a price skimming strategy must have some competitive advantage that allows it to charge a higher price than its competitors. This could be due to a unique product or service, high quality, brand recognition, etc.
The biggest challenge with price skimming is finding the right balance. If the introductory price is too high, then customers will be unwilling to pay and the company will miss out on potential revenue. On the other hand, if the introductory price is too low, then the company will not be able to maximize its profits.
Price skimming strategies
Now that we know what price skimming is and how does it work, let’s find out some of the strategies you can use
- Competitive pricing strategy:
The first and most common price skimming strategy is to charge a higher price than your competitors. This could be done by either introducing a new product or service at a higher price point than what is currently offered in the market or by raising the prices of existing products or services
- Product bundling strategy:
Another popular price skimming strategy is product bundling, which is when a company offers a combination of products or services at a single price. This could be done by bundling together products that are complementary to each other or by bundling together products that are typically purchased together.
- Penetration pricing strategy:
Penetration pricing is another common price skimming strategy in which a company charges a low introductory price to attract customers and then raises the price over time as demand for the product or service increases. It helps to generate buzz and interest in the product or service, which could lead to increased sales in the future.
- Temporary discount strategy:
The temporary discount strategy includes coupons, seasonal pricing, or other promotional pricing techniques that offer a lower price for a limited time. This strategy is often used to boost sales during slow periods or to clear out inventory.
Price skimming examples
Here are some of the real-life price skimming examples
- Electronic products: Electronic products like phones, laptops, etc. are often introduced at a high price and then the prices are gradually lowered as more competitors enter the market. If you consider Apple, it has been successful in using this strategy with its iPhones since the beginning.
- Fashion products: Fashion products are another good example of price skimming. Brands like Gucci, Louis Vuitton, etc. often introduce new products at a high price, and then the prices are slowly lowered over time.
- E-commerce sites: E-commerce sites like Amazon also use price skimming strategies. They often offer discounts and coupons to attract customers and then gradually increase the prices as demand for the product or service increases.
So there you have it. In this article, we have looked at the definition, strategies, and examples of price skimming. We hope that this article has helped you to understand how price skimming works and how it can be used as a pricing strategy. Thanks for reading.
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