How Innovative Brands Maximize Profits With Price Skimming Strategy?
Imagine launching a revolutionary product and not knowing how to price the product. Go mass-market or play it exclusively? Innovative product market players always search for new strategies to boost their profitability while maintaining their customer base. That’s when price skimming comes into the picture, a prominent pricing strategy for most business models.
What Is Price Skimming?
Phases Of Price Skimming Strategy
Check out the top 4 phases of price skimming strategies:
Product Launch Pricing Phase
The product is first launched at a high price in this phase. Early buyers who don't mind the high cost and want the newest things will be ready to buy.
High Initial Pricing Phase
After the first group of buyers has bought the product, the company gradually reduces the price. This aims to pull in a different group of shoppers who are more careful with their money.
Regular Pricing Phase
The price is then dropped further to catch the attention of shoppers who are very careful with their money. By this point, there can be many of the same products around, and other companies might also start competing.
End-of-Life Pricing Phase
The final phase comes when there's less demand for the product, and the company may choose to stop selling the product or develop a new pricing plan.
Remember that these work phases can change depending on the product and how the market behaves.
Features Of Price Skimming Strategy
The key features of the price-skimming strategy include
High Initial Pricing
One prominent feature of the premium pricing model strategy, like price skimming, is setting a high introductory price for a new item.
Gradual Price Reduction
Once the most eager buyers have their items, the price is gradually reduced to attract more customers.
Focusing on Demand
The premium pricing model also works based on the highest demand and willingness to pay. The highest-paying customers are served first, and the price is gradually lowered to bring in others looking for better deals.
Short-Term Strategy
Remember that a premium pricing model strategy is generally not a lasting plan. This is because other businesses typically join in and start competing, leading to lower prices.
Scenario Specific
Tech giants often use a premium pricing model, especially when they launch unique products without any market competition.
Cons Of Price Skimming Strategy
As much as this pricing strategy is advantageous, it does have some noteworthy disadvantages that one should consider.
Short-term Strategy
Price skimming usually isn't a good plan for the long run. This is because other businesses may start selling the same product for a lesser price.
Customer Relations
Starting with high prices can hurt your relationship with customers in the long run. Customers who bought the item when the price was high may feel disregarded when they see it decrease later.
Brand Reputation
If people think the starting price is too high and unfair, it could hurt the company's image or reputation.
Market Share
The high price could limit the volume of early sales, resulting in a smaller market share.
Attracting Competition
Keeping prices high might accidentally attract other businesses to enter the market. These businesses see a chance to sell similar products at a lower cost.
Examples Of Price Skimming Strategy
Sony is a well-known tech giant that adopts price skimming and a high initial pricing strategy, especially with PlayStation consoles. Whenever Sony releases a new Playstation console, they initially set high prices. Being innovative and highly anticipated products, these gaming consoles attract many dedicated gamers willing to pay this premium at launch. As the product matures in the market, Sony gradually reduces the price to appeal to more price-sensitive consumers.
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