Price Skimming
Pricing strategy of setting high initial prices and gradually lowering them over time to capture different market segments.
Also known as: Skim pricing, High-low pricing, Market skimming
Category: Business & Economics
Tags: pricing, strategies, businesses, marketing
Explanation
Price skimming starts with high prices to 'skim' maximum revenue from customers willing to pay premium, then progressively lowers prices to capture more price-sensitive segments. The strategy extracts maximum value from each customer segment over time, following the demand curve downward.
The strategy works best when: you have a genuinely innovative product with temporary monopoly, early adopters are price-insensitive, high initial prices signal quality, and production can scale to meet broader demand later. Classic examples include new technology products (smartphones, gaming consoles), pharmaceutical drugs, and fashion items.
Benefits include: recovering R&D costs quickly from willing buyers, signaling quality through high prices, and having 'room' to lower prices if competition emerges. Risks include: inviting competitors who see high margins, alienating early customers when prices drop, and slow initial adoption limiting network effects.
For creators and knowledge workers, price skimming appears in: launching premium courses to committed buyers before creating affordable versions, offering exclusive high-priced coaching before group programs, or selling hardcover before paperback. The strategy pairs well with exclusivity and scarcity—early buyers get access, prestige, or bonuses that justify the premium.
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