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

• Objective:

  • 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