Understanding Skimming Pricing Strategy: A Comprehensive Guide
Definition & Meaning
Skimming pricing strategy is a method where a company sets a high initial price for a new product or service and gradually lowers it over time. This approach is designed to maximize profits by targeting consumers willing to pay more at the outset. The strategy allows businesses to quickly recover their initial costs before competitors enter the market and drive prices down. Essentially, it aims to capture the consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay.
Legal Use & context
In legal practice, skimming pricing strategy may be relevant in areas such as antitrust law, intellectual property, and consumer protection. For instance, companies must ensure that their pricing strategies do not violate laws against price discrimination or unfair competition. Users can manage related legal documents, such as pricing agreements or compliance forms, using templates from US Legal Forms, which are drafted by real attorneys.
Real-world examples
Here are a couple of examples of abatement:
One example of skimming pricing strategy is seen in the technology sector. When a new smartphone is released, it often comes with a high price tag. As newer models are introduced, the price of the previous model decreases, allowing the company to capture profits from early adopters while still appealing to budget-conscious consumers later on.
(Hypothetical example) A company launches a new video game at a premium price. After three months, they reduce the price to attract more buyers, aiming to maximize profits from both high-end gamers and casual players.