Advantages and Disadvantages of Price Skimming

Price skimming is a pricing strategy which companies adopt when they launch a new product, in this strategy while launching a product company sets high price for a product initially and then reduce the price as time passes by so as to recover cost of a product quickly.

An example of price skimming would be mobiles which have some added features and due to those features they are sold initially at higher prices and then prices began to decline as time passes by, another example of price skimming would be 3D televisions which are right now being sold. Given below are some of the advantages and disadvantages of price skimming –

Advantages of Price Skimming

  1. Price skimming helps the company in recovering the research and development costs which are associated with the development of new product.
  2. If the company caters to consumers who are quality conscious rather than price conscious than this type of strategy can work in a great way for a company.

Disadvantages of Price Skimming

  1. This strategy can backfire if there are close competitors and they also introduce same products at lower price than consumers will think that company always sells the products at higher prices which will result in consumers abandoning other products of the company also.
  2. Price skimming is not viable option when there are strict legal and government regulations regarding consumer rights.
  3. If the company has history of price skimming than consumers will never buy a product when it is newly launched, they would rather wait few months and buy the product at lower price.
10 comments… add one
  • jack

    i love this website…it is realy usefull for business studies. Thanx luv dis website

  • tanyar

    thanks you helped me a lot in my school assignment

  • Ukongo Martin

    Thanks you very much, you have done wonders to me as am doing my revisions while waiting for examination.

  • Marcello

    thanks you helped me a lot.m preparing for my exams

  • william mtweve

    This site is so useful

  • Nthakoana

    Thank you it really helps alot

  • Adjah Stephen

    cant stop visiting this site for most of my project thesis
    thanks

  • ikatai Elijah

    This site has been so much useful to me

  • Alex Mapulanga

    Great article indeed for my Masters in Leadership Innovation and Change program.
    Many thanks!

  • mildred musengezi

    thanks a lot this site helped me preparing my exams

Leave a Comment


Related pages


examples of skimming pricingsystematic and nonsystematic riskwhat is normal goods and inferior goodssystematic and unsystematic risk exampleswhat is a withdrawal slipunearned revenue t accountdemerits of online shoppingjournal entry of outstanding expensesurbanisation benefitswhat is an autocratic leadershipfull form nasdaqdefinition of durable goodbad debts journal entrydefine certificate of depositswhat is the journal entry for prepaid expensescrossed chequestypes of fiiadvantages of venture capitalistan example of complementary goods would bemeaning of cagrdisadvantages of organisational structurefluctuating fund systemadvantages of stable dividend policymonopoly tutor2uintermediate good economicsmerit & demerit of internettypes of elasticitiesexamples of overheadsbenefits of merging companiesskimming pricing strategydifference between direct and indirect tax with examplesdistinguish between direct and indirect labourexample of derivative marketexample of conglomerate diversificationdifference between a finance lease and an operating leaseprepaid expenses journal entrybill discountingadvertising in monopolistic competitioncalculation of net worth formulawhen is a trial balance prepareddifference between term loan and overdraftwhat is absolute advantage in economicsproduct bundle pricing strategywhat is a indirect quotationadvantages and disadvantages of cost plus pricingdefinition of consigneemeaning of current liabilitiesexamples of mixed economy countriessocialist economic system advantages and disadvantagesbetdirectunitarily elasticwhat is cash inflowsprivatisation defineunclaimed dividendhorizontal & vertical analysisdefine law of diminishing marginal utilitythe main difference between a tariff and a quota isbenefit of ppfdifferentiate between direct and indirect taxeslocational arbitrageprocess costing meaningmeaning of escrow accountwhat are the advantages and disadvantages of market economyhypotheticationprogressive tax advantagesdisadvantages of a monopolydistinguish between explicit and implicit costexample of market penetration pricing strategywhat is vertical analysis of financial statementswhat is the journal entry for prepaid expensesjoint ventures advantages and disadvantagesconglomerate merger exampleswhat is the lifo methoddefinition of marginal costingwhat is a horizontal monopolydefine junk bondwhat is the meaning of fixed capitallifo disadvantagescapital account convertibility india