Price skimming refers to an initial pricing strategy where a new premium product is introduced to the market at a high price point targeted at the most eager and price-inelastic customers.
- An introductory high price is set to extract maximum value from those least price sensitive
- Additional consumer segments are targeted over time with lower prices
- Goal is to gain early profits from early adopters before dropping costs
Benefits include optimization of revenue in the launch phase before competitors enter. Risks are potential backlash and slower mass market adoption compared to penetration pricing.
Candidates for price skimming include new technologies, luxury goods or goods with short life cycles before obsolescence. Micro-segmentation identifies the most profitable early adopters.
Overall, when combined with perceived value and effective marketing, price skimming harvests payouts from those willing to pay premiums for novelty and bragging rights of being “first.”