Price skimming is a marketing approach to pricing when a relatively high price is established with regard to the prices set by other competitors (Lamb, Hair, & McDaniel, 2008). These prices are acceptable only for target customers for whom the product is highly valuable and who will eventually buy it. When the market demand decreases, the prices lower to attract other potential customers being less interested in buying the product.
Many companies apply this business strategy while introducing new products possessing unique benefits and functions. In the majority of cases, the firms use price skimming at the first stage of the product penetration to reduce prices at later stages. Such a phenomenon is often called “sliding down the demand curve” (Lamb, Hair, & McDaniel, 2008, p. 600). The approach is the most successful in case the newly integrated product is initially in high demand among the potential buyers. In this respect, a successful and consistent skimming strategy contributes to recovering the company’s product development, as well as all costs in an effective manner.
Apple is the brightest and the most appropriate example of how to price skimming strategy can be used efficiently. Paying closer attention to the pricing policies, the company also attains much importance to the customer’s expectations while establishing relatively high price levels for their new products. In 2007, Apple released the iPhone whose cost amounted to $ 599, which was $ 380 higher than the initial price of the product (Apple’s iPhone Pricing Strategy n. d.).
As a result of this campaign, the company managed to bring in great revenues and meet customer’s quality expectations. High demand was also due to the respectable image of Apple, which also played a crucial role in pricing decisions. A significant price drop in two months allowed the company to recover its development costs because the newly presented product featured unique technological advances that had never been introduced before.
References
Apple’s iPhone Pricing Strategy. n. d. Marketing@HPU. Web.
Lamb, C. W., Hair, J. F., & McDaniel, C. (2008). Marketing. US: Cengage Learning.