Have you ever wondered why some items are sold initially at a high price but soon become much cheaper? Well, the reason is the skimming pricing strategy. Companies such as Apple, Sony, and Samsung love using it when they introduce new products.
Sounds interesting? Keep reading!
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🛍️ What Is Skimming Pricing Strategy?
The definition of the skimming pricing strategy is the process of selling a product at a high cost, then lowering the cost to gain the interest of consumers with smaller budgets.
Here’s an example. Consider an item new to the market. It starts with a high cost, but once the initial customers have bought it, the price is reduced or skimmed.
When Is Skimming Pricing an Effective Strategy?
Skimming pricing is an effective strategy during the launch of a new product when the conditions are right. This means the product is needed, wanted, and has low competition. For example, during the Apple iPad launch, the price skimming method was effective because of the demand in the market.
When to Use Skimming Pricing Strategy?
The skimming pricing strategy will work more efficiently when a company or service industry is launching a new product or brand that does not yet have a lot of competition. Skimming works with new products that have a lot of attention around them.
💵 Advantages of Skimming Pricing Strategy & Its Limitations
There are many advantages to the skimming pricing strategy, but there are also some disadvantages. Let’s review them:
✔️ Pros of the skimming strategy:
|Recovering Costs||The high price provides a period where companies quickly recover the production cost.|
|Quality Considerations||The price tag creates an impression of a quality item.|
|Profits||Skimming reduces the cost of the product to suit each consumer. It enables the company to make the highest profit possible.|
❌ Cons of the skimming strategy:
|Added Competition||The high profits that the company attracts competition to the product or brand.|
|Frustrated Customers||The skimming of the prices needs to be carefully timed. A price lowered too soon can make customers feel cheated.|
|Deterrence||A price that is too high will discourage clients from purchasing the product.|
🛒 Skimming Pricing Strategy Examples
Skimming pricing strategy examples include its use by giants such as Sony, Apple, Samsung, Nike, and Gucci.
New consoles regularly create big hype in the gaming community. With the use of demos and gaming events, Sony sells the product before it has even hit the shelves.
Apple is seen as a quality brand. When they release a new product, people expect the same quality and price that comes with it. The essence of Apple skimming pricing strategy is maintaining the cost of its products and increasing the value of their future iterations.
The products Samsung makes have enough differences from Apple to stand on their own and become a brand people desire. They use price skimming in combination with a competitive pricing strategy.
Nike is known for high-quality trainers with a two-year returns policy. Limited editions use the skimming strategy. The culture around them creates excitement, making the prices work upon release.
People like to follow fashion; they want to get what is “in.” Gucci uses that mindset to create and release new “in fashion” stock with the skimming pricing strategy.
Other examples of companies with great skimming pricing strategy include:
Use these examples to write an excellent case study!