Skimming

• This happens when a company launches a new product at a high price. The high initial price allows a company to make a large initial profit and gain back some of the research and design costs before competitors enter the market. As competition increases, the price will gradually fall.
• Advantages:

  • Can charge a high price for a high quality product.
  • Able to make high revenue to cover the research and design costs.
  • Gives exclusivity value as people want to be the first to own the product.
• Disadvantages:

  • May discourage some consumption due to high prices.
  • Customers who brought at a high price may be dissatisfied as price is lower later on.