Price Skimming

Price skimming is a pricing strategy in which a company charges a high initial price for a new product or service and then gradually lowers the price over time. The goal of price skimming is to maximize revenue by capturing the maximum amount of money from early adopters and then tap into the larger market by appealing to price-sensitive consumers.

Price skimming is often used when there is little competition for a new product or service. It can also be used as a way to discourage potential competitors from entering the market. By charging a high initial price, companies can make it difficult for new entrants to undercut them on price.

One downside of price skimming is that it can alienate early adopters who may feel like they are being taken advantage of. This can lead to negative word-of-mouth and damage the company’s reputation. Additionally, if prices are lowered too quickly, late adopters may perceive the product as being overpriced and be unwilling to pay the current asking price.