Price skimming

Definition

Price skimming is a pricing strategy where a company charges the highest initial price that customers are willing to pay for a new product, then gradually lowers the price over time. This approach captures maximum revenue from different segments of the market by targeting consumers who are less sensitive to price before addressing more price-sensitive segments.

Related terms

Market segmentation: The process of dividing a broad consumer or business market into sub-groups of consumers based on some type of shared characteristics.

Product lifecycle: The cycle through which every product goes through from introduction to withdrawal or eventual demise.

Penetration pricing: A pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth before it is increased