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Price skimming is a high pricing strategy that we are applied to new products, when products are launched at first time into the market.
we can apply this skimming price to certain conditions, such as when having high-quality new products, lack of competitors in the market, and low production costs, but before we decide to use this skimming strategy, we must analyze and find out the buyers who want this product to be high enough to avoid losses that will happen to the company
Price skimming may not really have to do with product launches, new products etc., I personally would believe that it depends wholly on the demand & supply stats. In fact, this very much happens with our essential commodities. But, I could also see why companies would adopt that at the time of product launch is for a single reason that they must be uncertain about the possible outcomes of a product, how much ever a company takes stats and other strategies, the uncertainty principle is always attached to a product.
Price skimming also happens when a company has produced large chunks of given products, and they should have already taken the profits out of it, hence whatever they make are profits and top of it does a good marketing.
Price skimming is a product pricing strategy by which a firm charges the highest initial price
that customers will pay and lowers it over time. As the demand of the first customers is satisfied
and competition enters the market, the firm
lowers the price to attract another, more price-sensitive segment.
Price skimming is only used when a new product just entered the market, the business may be
able to charge high prices as some customers would want to be first to buy the product. Business usually start with a high price and
it will lower over time so this strategy is mostly used by technology products.
The Skimming pricing is used when a product, which is new in the market or just launched, is sold at a relatively high price because of its uniqueness, Skimming price is mostly used for technological products where the demand is not consistent. Furthermore, due to the high price, the correct positioning is obtained for the product which helps in reaching the right target audience.
The main objective of this strategy is to obtain profits in the shortest possible time, and is used when the institution feels that the future of its products is unstable. This strategy sets the highest possible price for a distinctive commodity in a short period of time without worrying about the company's long term position.
Price skimming is simply focusing on customers who have a high "willingness to pay" or relative 'price insensitivity'.
This gets into conjoint analyses to determine which customers are relatively insensitive to a high price. Think of a demand curve in an economics 101 class. Assume the demand curve is somewhat elastic, meaning it is downward sloping and you get less demand when charging a higher price. A company who wants to price skim is focusing on the uppper left end of the demand curve -- esseentially trading a lower volume for higher revenue per customer.
Price skimming works well when your entire brand is focused on customers who have a high willingness to pay, but probably expect great service, high quality, etc. Thus, you need to focus the entire brand strategy on serving these customers and then avoid discounting.
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