Price Skimming: Mastering Strategies for Profit and Market Dominance

By Fouad Sabry

What is Price Skimming

Price skimming is a price setting strategy that a firm can employ when launching a product or service for the first time. By following this price skimming method and capturing the extra profit a firm is able to recoup its sunk costs quicker as well as profit off of a higher price in the market before new competition enters and lowers the market price. It has become a relatively common practice for managers in new and growing market, introducing prices high and dropping them over time.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Price skimming

Chapter 2: Monopoly

Chapter 3: Monopolistic competition

Chapter 4: Marketing

Chapter 5: Price discrimination

Chapter 6: Elasticity (economics)

Chapter 7: Cross elasticity of demand

Chapter 8: Pricing

Chapter 9: Market segmentation

Chapter 10: Penetration pricing

Chapter 11: Substitute good

Chapter 12: Market penetration

Chapter 13: Market power

Chapter 14: Non-price competition

Chapter 15: Pricing strategies

Chapter 16: Demand

Chapter 17: Two-sided market

Chapter 18: Two-part tariff

Chapter 19: Premium pricing

Chapter 20: Target market

Chapter 21: Customer cost

(II) Answering the public top questions about price skimming.

(III) Real world examples for the usage of price skimming in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Price Skimming.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Mar 29, 2024

Book preview

Chapter 1: Price skimming

Price skimming is a pricing technique that a company might adopt when introducing a new product or service.

Occasionally, price skimming is referred to as riding down the demand curve. The purpose of a price skimming strategy is to collect customer surplus early in the product life cycle in order to capitalize on a monopoly position or the low price sensitivity of innovators.

Price skimming occurs when a marketer initially provides an item at a high price that consumers with the highest want and financial resources to purchase it will purchase, and then as that demand is drained the price is decreased to the next layer of customer desire in the market.

As prices are gradually dropped, various layers of cream, or consumer segments, are skimmed off by the skimming approach.

There are several examples of price skimming in the real world, particularly in the technology industry.

The Sony Playstation 3 console was introduced in 2006 for $599 in the United States.

Several possible issues exist with this method.

It is only successful when the firm's demand curve is inelastic. If the long-term demand curve is elastic (as depicted in the adjacent diagram), market equilibrium will be realized through changes in quantity rather than price. In this instance, penetration pricing is a more suitable pricing method. Any firm's price modifications will be matched by competitors, resulting in a quick increase in industry volume. Typically, a low-cost manufacturer pursuing a penetration strategy will obtain the dominant market share.

A price skimmer must observe the law with caution. In many areas, price discrimination is prohibited, while yield management is not. Price skimming can be categorized as either price discrimination or yield management. Price discrimination adjusts pricing based on market parameters (such as price elasticity), whereas yield management utilizes product features. This legal distinction is archaic in the eyes of marketers, as market factors and product attributes correspond strongly in almost all instances. To comply with the law when employing a skimming approach, a marketer must communicate and think in terms of product