Which pricing strategy involves setting a high price at the beginning to maximize profits?

Which pricing strategy involves setting a high price at the beginning to maximize profits?

• A. Price skimming
• B. Pénetration pricing
• C. Value-based pricing
• D. Competitive pricing

Answer: (A)

Price skimming is a pricing strategy where a product is introduced at a high price point, allowing a company to maximize profits from early adopters who are willing to pay more. This approach is often used when launching innovative products or technologies that have little to no competition initially. The strategy targets customers who prioritize having the latest features or advancements and are less sensitive to price. Over time, the price may be gradually lowered to attract a broader segment of the market once the initial high-paying customers have made their purchases. This method is effective for covering development costs quickly and establishing a product's value in the marketplace before facing competitive pressures that might drive prices down. In contrast, penetration pricing involves initially setting a low price to attract customers and establish market share quickly, while value-based pricing focuses on setting prices based on perceived customer value rather than costs. Competitive pricing, on the other hand, sets prices based on the prices of competitors rather than starting high and then gradually lowering prices. Each of these strategies serves different market objectives and customer bases, further highlighting the uniqueness of price skimming in leveraging initial high demand.

Price skimming is a pricing strategy where a product is introduced at a high price point, allowing a company to maximize profits from early adopters who are willing to pay more. This approach is often used when launching innovative products or technologies that have little to no competition initially. The strategy targets customers who prioritize having the latest features or advancements and are less sensitive to price.

Over time, the price may be gradually lowered to attract a broader segment of the market once the initial high-paying customers have made their purchases. This method is effective for covering development costs quickly and establishing a product's value in the marketplace before facing competitive pressures that might drive prices down.

In contrast, penetration pricing involves initially setting a low price to attract customers and establish market share quickly, while value-based pricing focuses on setting prices based on perceived customer value rather than costs. Competitive pricing, on the other hand, sets prices based on the prices of competitors rather than starting high and then gradually lowering prices. Each of these strategies serves different market objectives and customer bases, further highlighting the uniqueness of price skimming in leveraging initial high demand.