What is Price Skimming?
Price skimming is a business technique which involves charging a high price for a product when it is released initially, and gradually lowering the price over time. The goal of this practice is to ensure that the price matches consumer willingness to pay, generating profits for the company both over time and in the short term. The “skimming” is a reference to a stage in milk processing in which the cream is repeatedly skimmed from the top, yielding milk with a steadily lower butterfat content, much as price skimming creates a steadily cheaper product. There are a number of reasons for companies to utilize price skimming, beyond the simple desire for profits. One of the most basic motivations is the desire to recoup the investment involved in product development before competitors hit the market and make high prices unsustainable. For example, if a company develops a totally new and innovative product, it may spend a great deal of money in the process of designing and marketing the prod
The initial price is set low and kept constant. B) The initial price is set low and then raised. C) The initial price is set high and later lowered. D) The initial price is set high and kept constant. E) The initial price is set high and then raised. 7. Which of the following terms describes a pricing strategy in which a new product’s initial price is set relatively low in order to gain a large market share? A) Penetration pricing. B) Price skimming. C) Customer pricing. D) Designed pricing. E) Market-share pricing. 8. Which of the following pricing practices is illegal? A) Penetration pricing. B) Price skimming. C) Predatory pricing. D) Cost-based pricing. E) Market-share pricing. 9. Beehler Company, which desires to enter the market with a new product, will perform the following tasks: 1Design and engineer the product. 2Determine the product’s cost. 3Determine the desired profit margin. 4Determine the suggested selling price. If Beehler uses target costing, which task would the compa
