Price Skimming

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Description of Price Skimming. Explanation.

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Definition of Price Skimming. Description.

Price Skimming is a market-based approach to pricing wherein a high price is charged in initial market maturity stages to ' cream off the market'. Prices are set high in order to attract the least price-sensitive customers and to generate profit quickly, before competitors enter the market and start to force price erosion.

It is an attractive strategy for small, highly innovative companies with a new and unique product. Prices can and should be lowered after the cream has been skimmed. An associated advantage with this pricing method is its contribution to building the value of a brand or of the reputation of a firm. The method is also useful for prestige products and in general for products where demand is relatively inelastic (customers are not very price sensitive).