Many companies employ sensible pricing tactics to strike a balance between profitability and sales volume. Among these tactics is price skimming, where businesses charge different prices based on customer segments.
Employing price skimming allows these firms to optimize revenue from diverse customer groups and meet particular objectives.
This article explores examples of price skimming in various industries.
Price Skimming
Price skimming, also known as skim pricing, involve organizations setting initial high prices for newly launched products. These companies then adjust prices downward over time to appeal to customers who are more sensitive to price changes.
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This strategy is commonly used by businesses in high-tech or fashion sectors, particularly when introducing innovative technology or designs. Initially, these companies charge premium prices to leverage their exclusivity, later reducing prices as competitors replicate the technology or designs.
Price Skimming Examples:
Here are some examples of price skimming:
1. Nike’s Limited Edition Price Skimming Example
Nike employs a price skimming strategy for its limited edition collections, which are launched at premium prices ranging from $119 to $3,570.
This strategy targets customers willing to pay high prices for exclusive designs, allowing Nike to maximize revenue during the initial phase.
After six months, the prices of these special collections are reduced to attract a broader customer base.
2. Price Skimming Example: FitBit Skims Price
Fitbit also utilizes price skimming with its Fitbit Sense smartwatch series. The initial Fitbit Sense was released at $329, followed by subsequent models like Fitbit Sense 2 and an expected Fitbit Sense 3 at around the same price.
With each new model release or announcement, previous models receive price cuts to maintain competitiveness in the market.
3. Price Skimming Example: Product Versioning in the Book Industry
In the book industry, price skimming is evident through product versioning. New books are initially published in hardcover at high prices, targeting early adopters or enthusiasts.
If a book becomes a bestseller, it is later published in paperback at a reduced price to reach a wider audience.
4. Price Skimming Example: Kindle
Amazon’s Kindle also employed price skimming during its initial years. The first-generation Kindle was launched at $400 and gradually reduced in price over the years, following a similar strategy of attracting early adopters with higher prices before making the product more accessible to a broader market.
5. Price Skimming Example: Apple
Apple historically applied a price skimming strategy to its products, launching them at high prices and gradually reducing prices over time.
However, in recent years, Apple has shifted towards prestige pricing, maintaining relatively constant prices for its latest products due to their perceived high quality and brand image.
6. Price Skimming Example: Samsung
Samsung, on the other hand, effectively utilizes price skimming for its premium Android smartphones like the Samsung Galaxy S23 Ultra.
These smartphones are initially launched at high prices to capitalize on early demand and gradually reduce in price over time to maintain competitiveness in the market.
7. Price Skimming Example: Phone manufacturer
AFG Technologies, a phone manufacturer, employed a price skimming strategy for its innovative phone release. Initially priced at £599 for the 4GB model and £899 for the 8GB model, the phones quickly sold out.
Within two months, the company reduced the price of the 8GB model to £499, following its consistent approach of skim pricing. This strategy aimed to attract early adopters with the allure of cutting-edge technology, later offering price reductions to appeal to a wider audience.
8. Price Skimming Example: Innovative service
Company T, a phone manufacturer, recently introduced a proprietary technology in its devices and implemented a skim pricing strategy. Initially, the company set a skim price at P1 to recover its research and development costs.
Once demand stabilized at P1, Company T adjusted its pricing to a follow-on rate at P2. This follow-on pricing not only aimed to maintain profitability but also to create competitive pressure for new entrants while attracting price-sensitive customers.
In this price skimming strategy, Company T achieved income from its initial sales (Q1) at prices P1, denoted as A + B. Subsequently, with the follow-on pricing (P2), it generated additional income from the sales difference between Q2 and Q1, denoted as C. Thus, the company’s total income amounted to A + B + C, accounting for the sales volume of Q2.
9. Price Skimming Example: Dell
Dell utilized a price skimming strategy for its Ultrasharp 8K monitor, which was a pioneering product in its category. The initial launch of the UP3218K monitor in 2017 was priced at $4,999, showcasing a premium price point that targeted early adopters and enthusiasts.
Despite a price reduction to $3,724 in 2023, the monitor remains relatively expensive, reflecting Dell’s strategy of gradually lowering prices while maintaining a premium positioning in the market.
This strategy is particularly evident in a competitive landscape where nine competitors have entered the 8K technology market, spanning across various devices like projectors, TVs, notebooks, game consoles, and professional cameras.
However, the full adoption of products incorporating this technology, such as the specialized satellite required for broadcasting 8K content compatible with 8K monitors, may still take another year or two. As prices decrease and technology matures, demand is expected to increase significantly.
Dell also implements price skimming in its premium Alienware series of laptops, which are highly sought after by gamers. This strategy allows Dell to capture value from customers willing to pay premium prices for cutting-edge gaming technology.
10. Price Skimming Example: Sony
Similarly, Sony employed a price skimming strategy for its PlayStation gaming consoles. For instance, with the launch of PlayStation 3 (PS3) at $599, Sony targeted early adopters and gradually reduced the price to $299 before discontinuation.
The same strategy was observed with the launch of PlayStation 5 (PS5) in November 2020 at $499, which saw price reductions to $432 within a year, appealing to a broader customer base as prices became more accessible.
11. Price Skimming Example: Game Console
Sony also adopted a price skimming strategy for its gaming console lineup, exemplified by the PlayStation 3 launch. Priced at £425 per console, Sony anticipated strong sales due to the success of the PlayStation 2 and the unique features of the PS3.
Although the initial price was higher, reflecting its premium positioning, Sony gradually lowered the PS3’s price over the years, ultimately reaching £249 before discontinuation.
How price skimming works?
Price skimming is a strategy used by companies when launching new products. It involves initially setting high price points that customers are willing to pay.
This strategy allows companies to maximize revenue during the initial phase when demand is high and competition is limited, helping them recover development and marketing costs.
During the first phase of price skimming, companies target early adopters or innovators. For example, tech firms focus on individuals seeking cutting-edge solutions, while fashion brands cater to trendsetters looking for new designs.
These customers are typically willing to pay premium prices and are attracted by marketing messages emphasizing exclusivity or superior quality.
Once demand from the initial segment is satisfied and competitors enter the market, the second phase of price skimming begins. Prices are gradually reduced to attract price-sensitive customers and maintain competitiveness.
This phase often involves marketing strategies highlighting affordability and value for money, appealing to a broader customer base beyond the early adopters.