Which type of product is the most appropriate one for a company to use with a skimming strategy?
Written by Coursera • Updated on May 5, 2022 Show
Discover skim pricing, how it works, and how to decide if it’s the right pricing strategy for your business. What is skim pricing?Skim pricing, also known as price skimming, is a pricing strategy that sets new product prices high and subsequently lowers them as competitors enter the market. Skim pricing is the opposite of penetration pricing, which prices newly launched products low to build a big customer base at the outset. Businesses adopt a skim pricing model for several purposes, including:
Big brands like Apple and Nike tend to do well with price skimming and provide excellent price skimming examples to examine:
Advantages and disadvantages of skim pricingAs you consider skim pricing for your business, consider this strategy’s advantages and disadvantages:
4 signs price skimming is right for your businessIn addition to knowing the potential advantages and disadvantages of skim pricing, it’s helpful to evaluate your products and look for the four signs below before committing to a price skimming strategy. 1. Your market is not (yet) crowded with competitors.Price skimming is generally not a viable strategy in a crowded market, as consumers will have their pick of comparable products at competitive prices. Examine your industry and the market segments you are targeting for opportunities to introduce new products at an initial high price.
2. You are launching an innovative product.As with the Apple and Nike examples we explored earlier, you may be able to succeed with a price skimming model if you are launching a product that consumers perceive as innovative and an indispensable must-have.
3. Consumers in your target market are willing to pay a higher price.Conduct market research and review your current customer base to learn more about potential price-insensitive early adopters in your market segment. You may be able to leverage their must-have mentality.
4. Your demand curve is inelastic.When price changes do not affect the demand for a product, it’s called an inelastic demand curve. In other words, the need for your product would stay the same whether you lower or raise its price. Examples of such products include gasoline or toilet paper. Here are some factors that may help you determine your product’s demand curve:
Key takeawaysSkim pricing (or price skimming) can be highly effective for businesses that offer innovative products and have a system to attract price insensitive customers. It’s critical to research the market and consumer demand as you explore pricing strategies and choose the one that makes the most sense for your business goals. Improve your pricing strategy with CourseraTaking an online course can be a great way to learn more about pricing strategies. If you’re ready to maximize sales and profit, make effective pricing decisions, and gain a deeper understanding of customers’ responses to product pricing, consider taking the Pricing Strategy Optimization Specialization offered by the University of Virginia. specialization Pricing Strategy OptimizationSet prices the way the experts do. Master pricing strategies used by global consulting and academic leaders. 4.8 (690 ratings) 13,455 already enrolled BEGINNER level Average time: 4 month(s) Learn at your own pace Skills you'll build: Cost-Based Pricing, Pricing Strategies, Market-Based Pricing, Customer Value-based Pricing, Strategic Management, Channel and Direct-to-Consumer Pricing, Price Discrimination, Price Elasticity Of Demand, Customer Willingness to Pay, Measuring Customer Preferences, Customer Psychology, Competitor Pricing Models, Pricing to Competition, Market Segmentation, Competition (Economics), Conjoint Analysis, Executive Presentation, Pricing Economics Related articles
Written by Coursera • Updated on May 5, 2022 This content has been made available for informational purposes only. Learners are advised to conduct additional research to ensure that courses and other credentials pursued meet their personal, professional, and financial goals. What products use price skimming?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.
Why do companies use market skimming?Businesses adopt a skim pricing model for several purposes, including: Generating high short-term profit. Attracting early adopters. Segmenting customers as the price drops, according to what they are willing to pay for a new product.
What is product skimming?Charging an initially high price then gradually lowering it to attract more price-sensitive customers. Written by CFI Team. Updated February 19, 2022.
Which pricing method involves skimming techniques?Price skimming is a pricing strategy which involves setting a product/service at a high price when it first enters the market to 'skim' segments of the market who are willing to pay the higher price.
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