Question

Under which pricing strategy higher initial prices are fixed?

Hint:

Think of Apple’s iPhone launches: they start at a high premium price for the "early adopters," and as the months go by or new models arrive, the price of the previous model is lowered to reach a broader audience.

Answer 1

Pricing Strategy in which Higher Initial Prices are Fixed:

Higher initial prices are fixed under the Skimming Pricing Strategy, also known as Price Skimming.

Meaning of Skimming Pricing Strategy:
Skimming pricing is a strategy in which a company sets a high price for a new product at the time of its launch. The purpose is to “skim” the maximum revenue from customers who are willing to pay a higher price for new, innovative, or premium products.

After some time, when competition increases or demand from early buyers decreases, the company gradually reduces the price to attract more price-sensitive customers.

Explanation:

1. Targets Early Adopters:
The strategy focuses on customers who are ready to pay more for new technology or unique products.

2. Helps Recover Costs Quickly:
High initial prices help the company recover research, development, and promotional expenses.

3. Creates Premium Image:
A high price gives the product an image of exclusivity and high quality.

4. Gradual Price Reduction:
Prices are reduced over time to capture different segments of the market.

Example:
New smartphones, gaming consoles, and electronic gadgets are often launched at high prices and later sold at lower prices.

Conclusion:
The pricing strategy in which higher initial prices are fixed is called the Skimming Pricing Strategy, as it aims to earn maximum profit from customers willing to pay more at the initial stage.