Price Skimming

What is price skimming?

• Setting a high price to maximise profit when a new product is launched into a market

• Product is sold to different market segments at different times

• The top segment is skimmed off first with the highest price

What are the objectives of price skimming?

Maximise profit per unit to achieve quick recovery of development costs

When is price skimming best used?

• Works well for products that create excitement amongst ‘early adopters’

• Best used in introduction or early growth stage product life cycle

• Electronic items provide many great examples

  • Apple commonly uses price-skimming

What market conditions are required for price skimming to work?

• The product needs to have a high quality and brand image to support a high price

• There must be enough buyers prepared to pay the high price

• Competitors must be deterred from being able to enter the market with a similar product and under-cutting the price-skimmer