Which pricing strategy sets high prices when a product is introduced and then gradually lowers the price?

Which pricing strategy sets high prices when a product is introduced and then gradually lowers the price?

• A. Economy Pricing
• B. Bundle Pricing
• C. Market Penetration
• D. Price Skimming

Answer: (D)

Price skimming starts with charging a high price to capture the most value from early adopters who are willing to pay a premium for a new, innovative product. As those early buyers are satisfied and additional competitors or substitutes enter the market, the price is gradually lowered to attract more price-sensitive customers and extend the product’s life cycle. This approach maximizes initial margins and recovers development costs quickly, then broadens the customer base over time. In contrast, economy pricing aims for the lowest possible price to attract a broad audience, bundle pricing offers discounts for purchasing multiple items together, and market penetration sets a low price from the start to quickly gain market share. Price skimming is the best fit for products with high perceived value and limited initial competition, where the premium is justified early on.

Price skimming starts with charging a high price to capture the most value from early adopters who are willing to pay a premium for a new, innovative product. As those early buyers are satisfied and additional competitors or substitutes enter the market, the price is gradually lowered to attract more price-sensitive customers and extend the product’s life cycle. This approach maximizes initial margins and recovers development costs quickly, then broadens the customer base over time.

In contrast, economy pricing aims for the lowest possible price to attract a broad audience, bundle pricing offers discounts for purchasing multiple items together, and market penetration sets a low price from the start to quickly gain market share. Price skimming is the best fit for products with high perceived value and limited initial competition, where the premium is justified early on.