The purpose of this strategy is to optimize profits in the long run, by segmenting the market in three types of consumers:
- “Pioneer” customers who are willing to pay a premium price to be the first to access your offer.
- “Common” customers who are only willing to pay a “value for money” price.
- “Opportunistic” customers who only buy when facing and outstanding price/discount.
Then the market is sliced in three timeframes to take the best of those three consumer segments:
- On the launch the price is set high to maximize profits on the “Pioneers”
- After the “Pioneers” segment is exhausted, the strategy is to decrease the price to take now a broader segment – the “Common” customers.
- And in the end, usually when a new other product is already replacing this one, they decrease even more the price to tackle the last segment – the “Opportunistic” consumer.
However, this pricing approach is not appropriate or available to all markets due to:
- Legal reasons – Some markets/product have their prices regulated.
- Some markets/products have extreme elastic demand which means that any price variation can collapse the demand.
- This strategy invites other competitors to enter the market, so or you have a very unique product, or the exclusivity of the market (e.g. patent) or the entry cost on that line of business is very high avoiding the entry of more competitors.
Example of a market that usually follows successfully the "Price Skimming" strategy:
- On the video games market, you can observe that usually those brands launch their new products with a premium price and usually those prices decrease over time until it reaches only 10% of the original price aiming to the “Opportunistic” segment in the end.
- “Pioneer” customers who are willing to pay a premium price to be the first to access your offer.
- “Common” customers who are only willing to pay a “value for money” price.
- “Opportunistic” customers who only buy when facing and outstanding price/discount.
Then the market is sliced in three timeframes to take the best of those three consumer segments:
- On the launch the price is set high to maximize profits on the “Pioneers”
- After the “Pioneers” segment is exhausted, the strategy is to decrease the price to take now a broader segment – the “Common” customers.
- And in the end, usually when a new other product is already replacing this one, they decrease even more the price to tackle the last segment – the “Opportunistic” consumer.
However, this pricing approach is not appropriate or available to all markets due to:
- Legal reasons – Some markets/product have their prices regulated.
- Some markets/products have extreme elastic demand which means that any price variation can collapse the demand.
- This strategy invites other competitors to enter the market, so or you have a very unique product, or the exclusivity of the market (e.g. patent) or the entry cost on that line of business is very high avoiding the entry of more competitors.
Example of a market that usually follows successfully the "Price Skimming" strategy:
- On the video games market, you can observe that usually those brands launch their new products with a premium price and usually those prices decrease over time until it reaches only 10% of the original price aiming to the “Opportunistic” segment in the end.
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