Price skimming isn’t an effective long-term strategy because eventually, you’ll have competitors entering the market with similar, rivaling products and will put what is called “pricing pressure” on your company by introducing cheaper costs, and so on. Cons of price skimmingĪs there are hardly ever any pros without any cons… Can’t work long term Brings higher profitabilityįitting in with the previous point that it helps to make up costs needed to actually develop and launch the product, a higher initial product price can help you to generate a high profit margin for your organization. Setting your product at a higher cost - if you have an eager and willing customer base - can ultimately help you to recover or make up the costs it made to successfully bring it to market. Obviously, a product can cost a lot to create, develop, launch, and market. Introducing high prices in the early stages attracts customers who are status-conscious, and provides you with a much-needed buffer when it comes to reducing the price in the future if needs be when rivals enter the market.” Helps to recuperate costs To quote our guide to pricing, “Price skimming can also create an element of prestige surrounding your product or service it creates the impression your offering is a must-have. This then ultimately… Can help your brand reputation This then can make your product seem more prestigious and desirable, which can then increase your customer base and overall sales. Of course, this isn’t always the case, but a higher-priced product will often convey the impression that it is also higher in quality. The benefits of using this strategy are… The high price implies high quality So, we’ve done the hard work for you, and have come up with the most important pros and cons for the price skimming strategy. After all, something that may work for one brand, may not work for you. It’s important to weigh the pros and cons of any strategy that you are considering implementing within your product marketing strategy. This allows them to expand their market reach without sacrificing the upfront revenue from early adopters.
Customers line up overnight at Apple stores before launch day, or wake up at 5 am to purchase online.īut, one year after launch, that same iPhone or iPad comes down in price, and Apple is able to market to the early majority and late majority cohorts with a lower willingness to pay. Apple builds up demand with their early adopters via events where they reveal upcoming products, and then they leverage pre-sale to allow customers to pre-order before it even hits shelves. Whenever a new iPhone or iPad is launched, it comes at a premium price. Read all about it in our article: An example of price skimmingĪpple is a great and very common example of the price skimming strategy. The high price is typically the highest that part of their customer base is willing to pay and is then deliberately lowered to target more segments who can’t perhaps afford, or aren’t willing to pay, the highest price.Ī similar pricing strategy is called prestige product pricing, which maintains the high price throughout the entire product life cycle. The aim is to release the product at a high price when the product doesn’t have many other competitors on the market, and gradually decrease the price over time to maintain that competitive advantage once other products are introduced. Price skimming is a strategy some organizations use when launching a new product. In this article, we’re focusing on the final pricing strategy mentioned - price skimming - and hopefully, we’ll help you decide whether this is an appropriate strategy for your company to implement. So, it’s vital that you make the correct decision when choosing a pricing strategy. These are competition-based pricing, cost-plus pricing, dynamic pricing, value-based pricing, usage-based pricing, freemium pricing, and price skimming.Įach of these strategies will have different outcomes depending on different variables like your product quality, customer segments, budget, brand reputation, and so on. There are around seven pricing strategies that companies can use.
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