Give an example of when price skimming is suitable.

Price skimming, penetration, competitive, cost-plus, premium and psychological pricing, loss leaders, a worked mark-up, and how technology, competition and segments shape prices.

What you need to know

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Process

When does price skimming suit a launch, and how does penetration pricing work instead?

Key term

What is a pricing strategy?

Key term

What is price skimming?

Questions from this subtopic

Each one with the model answer underneath.

1
What is a pricing strategy?
Model answer
A pricing strategy is the method a business uses to set its prices. The right strategy depends on costs, competition, the target market and the product's stage.
2
What is price skimming?
Model answer
Price skimming is setting a high price at launch and lowering it over time. Skimming suits innovative products that early adopters will pay extra for.
3
Give an example of when price skimming is suitable.
Model answer
A firm launching a new games console can skim, as keen gamers will pay a high price at first. The price falls once rivals and later buyers arrive.
4
What is penetration pricing?
Model answer
Penetration pricing is setting a low price at launch to win customers and market share quickly. The price is raised once the product is established.
5
What are the risks of penetration pricing?
Model answer
A low price may bring little or no profit at first. Customers may resist the later price rise and switch to rivals.
6
What is competitive pricing?
Model answer
Competitive pricing is setting a price close to that of rival products. Competitive pricing suits markets where products are similar, such as petrol.

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