Price Skimming

AAA

DEFINITION of 'Price Skimming'

A product pricing strategy by which a firm charges the highest initial price that customers will pay. As the demand of the first customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment.

Therefore, the skimming strategy gets its name from skimming successive layers of "cream," or customer segments, as prices are lowered over time.

INVESTOPEDIA EXPLAINS 'Price Skimming'

Firms often use this technique to recover the cost of development.

Skimming is a useful strategy when:
-There are enough prospective customers willing to buy the product at the high price.
-The high price does not attract competitors.
-Lowering the price would have only a minor effect on increasing sales volume and reducing unit costs.
-The high price is interpreted as a sign of high quality.

RELATED TERMS
  1. Predatory Dumping

    A type of anti-competitive event in which foreign companies or ...
  2. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  3. Price Discrimination

    A pricing strategy that charges customers different prices for ...
  4. Mobile Advertising

    Mobile advertising is a method of advertising that appears on ...
  5. Mobile Marketing

    Mobile marketing is marketing that takes place via mobile devices ...
  6. Mobile First Strategy

    Mobile first strategy is trend in website development where designing ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  3. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  4. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  5. Bonds & Fixed Income

    Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about a British economist's proposed solution to a common economic problem.
  6. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  7. Economics

    What is Value Added?

    Value added is used to describe instances where a firm takes a product and adds a feature that gives customers a greater sense of value.
  8. Economics

    What is a Wholly Owned Subsidiary?

    A company whose common stock is 100% owned by another company, called the parent company.
  9. Economics

    Understanding Specialization

    Specialization is when a person, business, or region focuses their productive efforts on a smaller subset of a larger system for a competitive advantage.
  10. Economics

    Vietnam -- New Asian Hot Spot For Tech Investment

    Vietnam now has a rapidly expanding tech sector that's attracting investors from around the globe due to low business costs and highly skilled workers.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center