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The Concept of Price Skimming
Price skimming is costing tactic where a marketer sets a comparatively high cost of a service or product initially and then lessens the cost over time. It is a progressive type of yield management or price discrimination. The tactic enables the corporation to restore its ruined prices rapidly prior to the completion stage steps in and lessens the price of the market. Often, price skimming is nothing but riding down the curve of demand. The purpose of a price skimming tactic is to get the consumer surplus in the early stage of the product lifecycle to leverage a controlling position or the low-cost sensitivity of creators.
Price skimming is a pricing tactic of a product in which a business charges the greatest initial cost that consumers are going to pay. Once the demand of the initial consumers gets met and matched, the business drops the cost to allure a different price-sensitive segment. Thus, the pricing skimming strategy derives its name from skimming consecutive layers of customer segments or cream with the reduction in costs over time.
There are different reasons for skimming of the price. It takes place mostly in technological markets with businesses setting high prices in the initial stage of the product lifecycle. First, the uppermost market segment, which is willing to pay the greatest cost, gets skimmed off. The price then progressively reduces when the product matures. Price skimming is utilized only when a completely new product enters the market. During this phase, the firm can charge higher costs as certain consumers would want to purchase the product first. The firm generally begins with a high cost and the cost reduces over time. Therefore, mostly technology products use this tactic.
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