Strategic Marketing Exam 1 Practice

Which pricing approach matches SKIm pricing and when is it appropriate?

Start with a low price to maximize volume. Start with a high price to skim the market and recover R&D; appropriate for innovative, high-differentiation products with limited early competition. Pricing based on competitor's price only. Price changes randomly over time.

Correct Answer:

Start with a high price to skim the market and recover R&D; appropriate for innovative, high-differentiation products with limited early competition.

Explanation:

Skimming pricing centers on capturing the most value from early buyers by setting a high initial price. This lets the company quickly recover R&D and marketing costs while signaling premium quality, especially when the product is innovative and faces limited early competition. It works best when the offering is highly differentiated, has clear advantages, and there’s a segment of customers willing to pay more at launch, with the plan to lower prices later as competition increases or the market broadens. If demand is highly price elastic, or competitors can enter quickly, or the market is very price-sensitive from the start, charging a high initial price can slow adoption and reduce total profits.

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