• Business
  • SEO
    • Content
  • Social Media
  • Branding
  • Ads
  • Others

Definition, Strategy, And Examples Of Price Skimming

12.6KShares
196.9KViews

A nascent SaaS company's price approach is critical.It not only determines your early monetization plan, but also which market groups you'll target and how your product will be perceived.

Of sure, a superior product will appeal to more individuals.So how can you create a pricing strategy that doesn't limit your product's appeal?How do you target the wealthy upper-market segments without alienating the lower-wage earners?

Price skimming is one method.Not every organization can afford such a stringent approach.But if you understand how price skimming works and execute it correctly, it may provide you a big competitive edge, raise your client base and market share, improve your revenue, and increase the value of your product and company.

Price Skimming | Marketing Strategy

What Is Price Skimming?

COPYRIGHT_MARX: Published on https://marxcommunications.com/price-skimming/ by Keith Peterson on 2022-02-15T14:07:46.971Z

It is a pricing technique whereby a product or service is initially priced high and subsequently reduced as buyers become familiar with it.This strategy does not target the mass market.

This method is termed penetration pricing, which sets prices low to enter markets.

How Does Price Skimming Work?

Regardless of whether the price truly represents the value of a cutting-edge product, customers who are known as "early adopters" will pay higher costs for it.Prices are eventually dropped in order to keep up with the demand for the goods and draw in more price-sensitive consumers.

Theoretically, a corporation can capture some of the consumer surplus by charging the maximum price each section is willing to pay as each customer segment is "skimmed" off the top.

However, price skimming can successfully segment the market but it is practically impossible to capture all of the consumer surpluses with this method.Because demand for a product is inelastic to price changes, price skimming is most successful when quantities purchased remain stable despite price fluctuations (for more on this, see our post on price elasticity).

Since the price of cutting-edge products like the iPhone has the potential to be inelastic, corporations may be able to charge the highest prices for them.When it comes to price skimming, there are both positive and negative aspects to consider.

Price Skimming Strategy

Customers who buy at high costs are targeted through price skimming.The more clients a firm can reach by lowering its prices is a surefire way to increase sales.

Popular shoe releases are subject to price skimming by Nike, a well-known shoe and apparel maker and retailer.This is accomplished by charging a premium for new and limited edition products.

Nike, for example, has no problem raising its costs because it is one of the most popular brands in the world.Nike's trainers are in high demand, and customers are willing to pay a premium to be associated with the Nike brand.When Nike releases a new product, it lowers the price many months later in order to appeal to a wider range of customers.

The interplay of online and off-line sales is an additional strategic consideration.The Ropo Effect (online research, offline purchase) may enhance in-store sales if retailers align in-store and online prices.

Price Skimming Examples

Apple, Samsung, Sony, and other IT giants, such as Google, Amazon, and Microsoft, are the most common examples of price skimming.

There are many conditions that must be in place for price skimming to be a really effective dynamic pricing scheme, despite its obvious advantages.Let's take a look at some real-world examples of price skimming to see when it's most effective.

The Latest IPhone

Apple's approach to product pricing may not be strictly SaaS, but price skimming is exemplified in a way that almost everyone can identify.When it comes to freshly released products, Apple's prices are so exorbitant that they're practically discouraging, yet there are always lines outside of Apple stores on the days of the latest iPhone launch.

Thus, Apple is perfectly situated to reap the benefits of price-skimming.Aspirational for any technological firm is the company's command of so many successful product launches and its associated price-skimming strategy.

Salesforce

In the SaaS industry, Salesforce was a leading proponent of the price-skimming ethos.In order to support its pricing approach, the company sparked a complete paradigm shift in the SaaS sector.Cloud-based CRM was pioneered by Salesforce, which was the first of its sort.

Salesforce is a prime example of a corporation whose technology supported a price-skimming approach due to the disruptive nature of its cloud product.

Salesforce was able to make a great amount of money rapidly thanks to its ability to secure enterprise-level transactions with large corporations.Scaling down to serve smaller organizations who also sought out the cutting-edge CRM became possible later on.

Even as CRMs have become more mainstream, few firms have adopted Salesforce's successful approach of skimming.

Summary- Know Your Market Before Implementing Price Skimming

As long as you're on the lookout for the potential drawbacks as well as the advantages, price skimming can be an effective way to set a new product's price point.The improper move or rapid price reductions can evoke the dreaded PR reaction when you set high beginning prices and reduce them over time.

The exact shape of the demand curve and the possibility of executing a price skimming strategy can be discovered by analyzing and understanding what customers appreciate about your service.Skimming can bring in the money you need to swiftly recoup development expenditures, keep updating the product, and assure your business's longevity if there are few competitors in the market and you communicate the price reductions successfully.

Share: Twitter | Facebook | Linkedin

About The Authors

Keith Peterson

Keith Peterson - I'm an expert IT marketing professional with over 10 years of experience in various Digital Marketing channels such as SEO (search engine optimization), SEM (search engine marketing), SMO (social media optimization), ORM (online reputation management), PPC (Google Adwords, Bing Adwords), Lead Generation, Adwords campaign management, Blogging (Corporate and Personal), and so on. Web development and design are unquestionably another of my passions. In fast-paced, high-pressure environments, I excel as an SEO Executive, SEO Analyst, SR SEO Analyst, team leader, and digital marketing strategist, efficiently managing multiple projects, prioritizing and meeting tight deadlines, analyzing and solving problems.

Recent Articles

  • Pros And Cons Of Starting A Small Business Online While In College

    Business

    Pros And Cons Of Starting A Small Business Online While In College

    Most great entrepreneurs of the last half-century were in their teens or twenties at the time of their achievements.

  • Ted Rubin Teaches You To Be Better At Marketing

    Influencers

    Ted Rubin Teaches You To Be Better At Marketing

    Ted Rubin is a very popular CMO with 516K followers on Twitter who learn from him about growth hacks, how to think of ideas without being distracted, and how to keep a relationship healthy.

  • How To See Who Blocked You On Twitter? Things You Can Try Right Now

    Social Media

    How To See Who Blocked You On Twitter? Things You Can Try Right Now

    Twitter users can change how their feed looks and filter out things they don't want to see. One thing you can do is block someone. If you're not sure how to see who blocked you on Twitter, you've come to the right place.

  • How To Turn Off YouTube Shorts Permanently In Different Ways?

    Social Media

    How To Turn Off YouTube Shorts Permanently In Different Ways?

    YouTube Shorts is one of the newest things on YouTube. How to turn off YouTube shorts? If this question bothers you, you've come to the right place.

  • How To Tag Someone On Twitter? Increase Your Engagement

    Social Media

    How To Tag Someone On Twitter? Increase Your Engagement

    Tags are another way to mention someone in a tweet on Twitter. We all know that Twitter limits the number of characters you can use in a tweet, so tagging is a good way to avoid using up extra text space. If you want to know how to tag someone on Twitter, you are in the right place.

  • Rand Fishkin - Master The Art Of SEO From The Wizard Of MOZ

    Influencers

    Rand Fishkin - Master The Art Of SEO From The Wizard Of MOZ

    Rand Fishkin has a lot to share with the Twittersphere. He was the CEO of MOZ, a well-known SEO platform, and is an entrepreneur.

  • How To Change Twitter Language On Mobile And Desktop?

    Social Media

    How To Change Twitter Language On Mobile And Desktop?

    Depending on where you live, Twitter will be set to a different language by default. If you live in the US, Canada, or the UK, it might be set to English by default. If you want to know how to change Twitter language, you are in the right place.

  • How To Delete Twitter Search Suggestions? Remove Search History

    Social Media

    How To Delete Twitter Search Suggestions? Remove Search History

    Platforms like Twitter keep track of our social media activity around the clock and use our activity history to suggest things like search prompts, products, and people you might know. If you want to know how to delete Twitter search suggestions, you are in the right place.

  • Neil Patel - 6 Lessons To Learn From The SEO Guru

    Influencers

    Neil Patel - 6 Lessons To Learn From The SEO Guru

    Neil Patel is an American business owner, consultant, and digital marketer who is known for his successful blogs, books, and businesses. Neil's success really took off after he wrote The Art of SEO, his first book.

  • How Long Can Twitter Videos Be - Make Every Second Count

  • How To See Recent Followers On Instagram? Check Who Follows You

  • Adam Grant - Lessons And Motivation From The B2B Influencer

  • Does Twitter Show Who Viewed Your Profile And How To Check It?

  • What Does A Marketing Coordinator Do And How Much They Make?