![]() You can read more about Apple in our case study: How does Apple use being a luxury brand? – Case study of a skimming strategy. Following the launch of a new model, the previous model’s value declines as it is no longer considered a novelty. Every year, when a new smartphone model is released, the original price is much higher than that of the competition. APPLE & OTHER SMARTPHONE PRODUCERSįrom the very beginning, Apple has been using price skimming in the range of iPhones they offer. However, several well-known brands have mastered their price reduction strategy to perfection. The price of the product always indirectly reflects the goal pursued by the company. Price skimming can be the basis for the development or decline of a business. That’s why every brand should track prices at which its clients offer the products in the market to be aware of any SRP deviations that could influence its reputation. The companies that take advantage of price skimming strategy and cooperate with several distributors need to make sure the prices their products are offered at in the market are aligned with their pricing strategy. Inadequate management of the price reduction strategy may also cause consumers aware of the company’s activities to wait several months before purchasing a product and pay a much lower price for it. As a result, Apple was forced to offer coupons for the first buyers to use as compensation. This ill-conceived strategy triggered a massive dissatisfaction among customers. If the product is worth 2,000 USD at the launch time and its value drops by 70% after just several months, the first buyers may feel cheated. If a company cannot explain why the initial cost is so high, consumers may not want to buy it.Īlso, producers who decide to use skimming pricing must consciously plan the long-term price reduction strategy to avoid discouraging consumers. First of all, it’s essential to take appropriate marketing actions to prove that the product is worth the price. Price skimming, like any other pricing strategy, also has its drawbacks. Such an action allows achieving the highest possible profits from various types of customers in the long run.ĭoes price skimming have any disadvantages? A high price will encourage the purchase among early adopters, while its subsequent reduction will attract consumers more sensitive to the product’s price. The use of price skimming enables price gradation over time and is an effective way to segment the market. Moreover, making a profit from the very beginning allows you to reduce the risk of rapid aging of the product. High profit over a short period is only slightly affected by discounts. Price skimming allows companies to recover their product development cost quickly. ![]() Price skimming allows you to convince consumers that the product is of high quality and belongs to their must-have category. Higher prices at the beginning of the product life cycle enable you to build a prestigious brand image that attracts status-conscious consumers. High price as an indicator of prestige and quality Besides, price skimming has several other advantages. Especially when the demand is falling, or the competition threatens you. Price skimming – why is it worth your attention?Īn essential advantage of this strategy is that it is easier to lower prices than to raise them. Over time, the product’s price is gradually lowered to reach more price-sensitive customers. These customers are sometimes referred to as early adopters. At this stage, wealthy customers who want to acquire a new product as soon as possible usually make the purchase. This type of action aims at achieving maximum profit without generating top sales shortly after the product is launched on the market. In particular, it is very popular with producers of breakthrough and innovative products. Price skimming is one of the most popular pricing strategies (along with the penetration strategy ) that companies use when they are introducing a new product to the market. 5 How does price skimming work in e-commerce? Price skimming definition
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