Apple is known for its devoted following, and its premium prices reflect that. People are drawn to the brand due to the lure of being part of the in-crowd that owns Apple products. The goal is to gather as much revenue as possible while consumer demand is high and competition has not entered the market.

As the price drops, you’ll continue to appeal to more and more price-sensitive customers. That’s where the term “price skimming” comes from—you’re continuing to skim different market segments off the top as you keep reducing the product’s price. As we said, price skimming is one of the commonly used strategies in the tech industry. Almost every tech giant is using this tactic at least for pricing some if not all of their products.

On top of that, it doesn’t make much sense for these types of workers or businesses to lower the costs of their services as they advance in their careers. In addition to knowing the potential advantages and disadvantages of skim pricing, it’s helpful https://1investing.in/ to evaluate your products and look for the four signs below before committing to a price skimming strategy. That perception may or may not be accurate, but it’s a massive piece of the price skimming puzzle—especially when it comes to early adopters.

You are launching an innovative product.

Customers can’t get less-expensive alternatives, and those who are particularly interested in your product will pay a higher price. If you’re going to eventually reduce the price anyway, why not launch at that lower price tag? When a company has attracted as many sales as possible and starts seeing its numbers decrease, it progressively lowers the product price to capture the rest of the market. Price skimming works by taking advantage of the initial high consumer interest when a product has just launched. Immediately after a new release, products are usually at the peak of the market’s attention.

Another condition for price skimming to be successful is that enough customers are willing to pay the high price for the product and that price does not attract competitors too fast. Price skimming pricing strategy is not used as often as some pricing strategies, but it is one of the more adaptable pricing strategies. Even without competition, you will eventually reach a limit of customers you can sell to at high prices.

A customer may go to the competitor if the price reduction comes too late; this will reduce sales and, thus, reduce the overall revenue significantly. The price skimming methodology implies that brands have to intently manage their item’s direction just after its launch because the excitement for the item will probably be going to be at its peak in the beginning. The airline industry, with its dynamic pricing based on demand, seat availability, and other factors, highlights the complexity of constant price adjustments. This study underscores how price skimming can capitalize on the psychological association of price with quality and enjoyment. Samsung often employs this tactic, launching its Galaxy phones with high-end campaigns, and then, as prices reduce, marketing them as the ideal choice for every individual.

• Price skimming is the
  strategy where marketers charge higher price of its product and service in the
  beginning, and then reduce it over time.
• This follow-on price is appealing for more price-sensitive consumers, who start to buy the product.
• Price skimming is not merely a strategy of setting high prices and then slowly reducing them.
• The latter usually lasts from a few weeks to months (usually up to 6 months at most but exceptions occur).
• The first one would be competitive pricing but right next to it is its price skimming strategy.

Price skimming may be a realistic strategy for a company like Apple, but only when demand does not fluctuate drastically when prices change. If your product’s demand curve is typically elastic, which means that price adjustments have a stronger influence on product demand, then starting with high pricing might substantially hinder your sales volume. Any company’s objective is to make a product as inelastic as possible, but not everyone sells tech goods or services that are innovative enough to look vital to consumers.

It helps them make the most out of the certain market segment that is created from pricing highly and then reaching the rest by reducing the price as time passes. As production costs decrease and market saturation increases, the price drops, attracting a new segment of buyers. By targeting consumers with a high willingness to pay, these companies can recover costs rapidly. Therefore, the company
should lower the price of its products and services gradually after the price
skimming strategy. If a company changes the prices of its product hastily, then
it would face severe reactions from its customers.

Overview of Pricing Strategies – Finding the right…

Therefore, business and the company shouldn’t follow the price
skimming strategy in the competitive market. A price-conscious segment of the market belongs to the middle and lower-middle-class of the people, their income is limited and they prefer a cheaper product and have better function. In the second stage of skimming the product’s life cycle, the company targets this segment of the market. In the beginning, when the company uses the skimming strategy, then it targets the quality conscious and brand prestige customers; these people don’t much care about the price.

How Important Product Sequencing is to the World of Ecommerce

Consumers may be willing to purchase solely out of curiosity or to be ahead of the curve. Price skimming means charging a high price when a product first enters the market in order to benefit from those willing to pay more, while gradually dropping the price to reach the remaining markets. To take advantage of this strategy, consider working with Saras Analytics to set up tracking and automated dashboards to gather data and make informed decisions about high-performing segments and cohorts. Contact us to learn more about how we can help you implement a successful price-skimming strategy.

Price skimming

Therefore, the skimming strategy gets its name from skimming successive layers of “cream,” or customer segments, as prices are lowered over time. If you’re entering a heavily saturated market with an undifferentiated product, it’s probably not the wisest idea to come out with a high-priced markup. Essentially, you’re not displaying any competitive advantage or reason for buyers to choose you. Since most clothing stores only make a set amount of each style, price skimming works perfectly here.

Overall, implementing premium pricing in conjunction with price skimming can be an effective strategy for companies that offer unique, high-quality, or exclusive products or services that target high-end consumers. After it has set a high initial price, the company gradually brings down its prices to target customers having price sensitivity in their minds. This pricing strategy is viable for companies that are first movers, who are new entrants and face negligible competition. The pricing policy of Apple is the most popular illustrative example of price skimming. As the new versions of Apple’s products appear on the market they are intentionally overpriced by the company yet being still highly demanded by the early adopters and Apple’s fans. In few months after the products’ presentation, the prices are lowered and, eventually, lowered even more on the eve of the presentation of Apple’s next product generation.

Inevitably, the outcome of the price skimming pricing strategy dictates you will have to lower your prices, a relevant point to keep in mind when forecasting sales. The flip side to this is of course that the price skimming pricing strategy is not a secret to most customers, particularly those in the market for smartphones, tablets, gaming consoles and other high-tech products. Do you have a new innovative product and you want to make hay while the sun is shining and secure as much profit as you can before your customers lose interest?

Examples of price skimming

On the other hand, price penetration is the strategy where marketers lower the price of its products and service, with the plan of grabbing a great market share. It usually happens in the category of common low-priced items; like ordinary household products. It’s because such items are everybody’s needs, and everyone expects a lower price.

As time passes and your once-innovative product becomes less novel and more accessible to a greater range of people, the price inevitably and steadily declines. In this article, we give you the down and low on the Price Skimming Pricing Strategy and outline its benefits and drawbacks. The strategy of price skimming helps to get the highest possible revenues from the innovations of these innovators.

The beauty of price skimming is its ability to cater to different market segments sequentially. Initially, it targets premium customers, and as the price reduces, it captures the middle and lower segments of the market. After catering to the high-end market with its pricier models, Apple sought to attract a broader audience with a more affordable yet powerful device.