price skimming

Price skimming is a pricing strategy that initially sets the price of a product at a high level when it is launched on the market and then lowers it as the product life cycle progresses.

Even though the high entry price generally results in lower sales volumes, higher margins can be realized at the same time. The aim of price skimming is to fully capture customers’ willingness to pay who are willing to pay a higher price for the newly introduced product. These customers are often so-called innovators or early adopters, who associate a socio-economic prestige status or a technical advantage with product use.

In addition to customers’ willingness to pay, cost structures also change over the product life cycle. The reduction of variable unit costs over time is therefore often an additional driver of the skimming strategy. An example for the regular use of price skimming is the consumer electronics industry. Within the latter, new innovative products are brought onto the market at relatively high prices and often reduced in price after only a few months.