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What is price skimming? It is a variant of the demand-based pricing strategy, but instead of being seasonal, or temporary, it is linked to the launch of a product / service and to the price sensitivity of the different segments of the business’ market.

Let us use an example. iPhones use this pricing strategy. A lot of noise is made about the phone before it's launched. So when it is put on the market, consumers can line up for hours, or even days, to be amongst the first to have the coveted item.

In this context, a higher price may be charged for the phone at the beginning, to reach customers who will pay a premium to have the item. Once the "novelty" fades, the price goes down gradually to interest customers that are more price sensitive.

It is a complex pricing strategy in its application because it requires the comprehension of several key elements of the company including:

- Understanding the "price elasticity" variant of the company. Price elasticity is defined by the impact of a price change on demand. So the company needs to understand at what price profitability starts to decline.

- Having a strong brand to increase the price elasticity (to be able to maintain the level of sales even with some price increase).

- Having some resistance to the action of competitors (iPhones vs Android phones for example).

- Mastering the communication process. Line-ups do not form systematically for every product of every company having a brand. You must know how to communicate well to get people excited.

This pricing strategy is complex for many small businesses when you consider all the elements that compose it. But if you can understand and manage the parameters stated above, this pricing strategy can maximize your profitability.

If you have any questions or comments, please do not hesitate to contact me.


Stéphane Elmaleh-Riel, B.Ed., MBA
Marketing consultant

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