What is price skimming?

• A. Set high initial price; then lower.
• B. Set low initial price to gain market share.
• C. Price based on competitor's price only.
• D. Price is based on cost-plus.

Answer: (A)

Price skimming starts with a high price for a new product and then gradually lowers it over time. This approach aims to capture the most there is to pay from early adopters who value novelty and can pay a premium, while later reducing the price to attract more price-sensitive customers as the product matures and competition increases. It’s about maximizing margins early and then broadening the market with lower prices.

This differs from charging a low initial price to gain market share (penetration pricing), pricing based on a rival’s price (competitive pricing), or pricing based on cost-plus (cost-based pricing).