They must stand out in some way that makes customers believe it's different from everything else available. Businesses that use this product pricing strategy have these things in common: Product differentiationĪ skimming pricing strategy only works for products that are different from those in their markets. Companies that use price skimming often have new, innovative, or in-demand products and know their customers will be willing to pay more for them immediately after launch. The price skimming strategy isn't the right option for every business. Then, they reduce the prices after several months to appeal to more price-sensitive customers. Many top brands use price skimming when they launch a new product because they know their customers are willing to pay more for first access to a brand-new product. Then as a business reduces its prices based on what others are willing to pay for it, it can appeal to a wider audience. The price skimming pricing strategy generates high profits in the short term while attracting early customers who don't mind paying more for a better or new product. The price skimming strategy is just one of many different pricing methods and strategies, but it can help you target a particular type of customer segment without alienating others. Under this model, businesses set prices high and lower them as new competitors emerge.

This is called dynamic pricing, in which companies change prices based on customer demand.īut what if you started with higher prices? Price skimming is a pricing strategy used to bring new products to market. Typically, companies increase their prices as a product becomes more popular and there's more demand. Companies sometimes send price increase letters to inform customers of increases in their pricing and explain why.

Price skimming and penetration pricing