Skimming pricing strategy is a marketing approach where a company sets a high price for a new product initially, aiming to maximize profits from segments willing to pay a premium. Over time, the price is gradually lowered to attract more price-sensitive customers. This strategy is particularly effective for innovative products, allowing businesses to recover research and development costs quickly while targeting early adopters before moving to the broader market. Below are three diverse, practical examples of skimming pricing strategy in action.
When Apple releases a new iPhone model, it typically sets a high initial price, targeting tech enthusiasts and loyal customers who are eager for the latest technology. This approach allows Apple to capitalize on the strong brand loyalty and high perceived value of its products. For example, the iPhone 13 was launched starting at $799. Over time, as newer models were introduced and the initial excitement waned, Apple reduced the price of the iPhone 13 to appeal to a broader market segment, including those seeking more budget-friendly options.
Sony employs a skimming pricing strategy with its gaming consoles, particularly evident during the launch of the PlayStation 5. Released at a starting price of $499, the PlayStation 5 catered to dedicated gamers and fans of the brand who were willing to pay a premium for the latest technology. As the initial demand from early adopters began to decline, Sony gradually reduced prices for older models, such as the PlayStation 4, to attract a larger audience and clear inventory.
In the pharmaceutical industry, companies often implement a skimming pricing strategy with new drug launches. For instance, when a groundbreaking medication for a chronic illness is introduced, it may be priced at a premium, reflecting the extensive research and development costs. A real-world example is the introduction of the Hepatitis C drug, Sovaldi, priced at $1,000 per pill. Initially, it targeted healthcare providers and patients who are willing to pay for the latest treatment options. Over time, as competition increases and generics become available, the price may decrease significantly, allowing broader patient access.
By understanding these examples of skimming pricing strategy, businesses can effectively implement this approach to maximize initial profits while remaining competitive in the long run.