When Price Skimming doesn’t Make Sense?
1. Highly Competitive Markets: In markets where there’s intense competition, price skimming might not be the best strategy. Competitors can quickly enter with similar or better products at lower prices, leading to price wars and reduced profits.
2. Price-Sensitive Customers: If the target customers are very sensitive to prices and are not willing to pay extra for new features, price skimming may not attract the early adopters as intended.
3. Fast-Changing Technology: In industries where technology evolves rapidly, waiting too long to lower prices might mean the product becomes outdated before reaching a broader audience.
4. Limited Marketing Resources: Successful price skimming often requires a significant investment in marketing to create awareness and highlight the unique value of the product. If resources are limited, the strategy may not yield the desired results.
Price Skimming : Meaning, Working, Advantages & Disadvantages
Price skimming is a strategy where a company starts by setting a high price for a new product and then gradually lowers it. The idea is to make the most profit initially from customers who are willing to pay more for something new. This approach is often used for innovative products, like the latest smartphones. The company begins with a high price to attract early adopters, and as time goes on, the price decreases to appeal to a wider audience. It’s a way for businesses to balance making money and reaching more customers.
Geeky Takeaways
- Price skimming operates like a roller coaster, starting high and gradually descending to attract early adopters before reaching a broader audience.
- The initial high price isn’t just a number; it’s a mind game. It links premium pricing with exclusivity, making the product appealing to those valuing perceived value.
- It’s not a fixed plan; it adapts. With market shifts and new players, the gradual price reduction keeps the product competitive and attractive to a wider audience.
- Price skimming isn’t a solo act; it’s a dance with market dynamics. The strategy responds to changes, adjusting prices to stay relevant in a dynamic market.
- Success hinges on continuous innovation. To justify the initial high price, companies must consistently offer groundbreaking features. A slip in innovation can weaken the entire strategy.
- While chasing early profits, companies using price skimming also plan for the future. The strategy funds future developments, ensuring a balance between immediate gains and sustained growth.
Table of Content
- What is Price Skimming?
- How Does Price Skimming Work?
- Examples of Price Skimming
- Price Skimming Strategy
- Advantages of Price Skimming
- Disadvantages of Price Skimming
- When Price Skimming Does Make Sense?
- When Price Skimming Doesn’t Make Sense?
- Premium Pricing vs. Price Skimming
- Frequently Asked Questions (FAQs)