Implementing a Price Skimming Strategy

The price skimming strategy, key for innovative or unique products, sets high prices initially for less price-sensitive consumers. This approach leverages novelty and exclusivity, gradually reducing prices to capture a wider market.

Learn how a price skimming strategy can maximize your revenue and strengthen your brand positioning in the marketplace.

Companies often employ a variety of initiatives to improve both consumer perception of their products and to increase sales. Among others, the price skimming strategy is usually one of the most common. What does it consist of? Also known as “pricing skimming”, this price penetration strategy consists of assigning a high price to a new product or service and then gradually reducing it over time.

This value-based pricing is intended to attract primarily those customers who are willing to pay more for a product in order to have it before the rest. Companies impose premium prices at the outset in order to attract consumers with greater purchasing power, and as demand from these customers is satisfied, the company reduces prices to attract a larger number of users. To this end, companies usually establish a temporary price segmentation that will gradually expand the customer base.

Keys to success

The main advantage of establishing a price skimming strategy is that it appeals to a wide variety of customers. This strategy, usually employed by the main telephone manufacturers, is the exact opposite of the one used by airlines or concert and event promoters who opt for dynamic pricing models in which the price adapts practically in real time to demand. Some of the keys to success with this strategy are based on different concepts.

Market knowledge

Market knowledge is the main element of a price skimming strategy as it provides valuable data on product demand, the role of competitors and customer expectations. A platform such as Digital Customer Engagement by aggity makes it possible to analyze customers’ willingness to pay a higher price for a product to be brought to market.

With these data and using predictive models, the seller will be able to know the price elasticity of demand of the product and determine the appropriate price to be charged. That is, if customers are willing to pay higher prices regardless of price fluctuations, the price skimming strategy may be more effective.

Product positioning

The company that opts for this type of sales strategy must be clear about the position of the product or service it wants to bring to the market. The price skimming strategy only works if customers perceive high value and high quality in the product or service it is intended to provide.

To do this, the company must make it clear to potential high-value customers that the product has unique characteristics and attributes that differentiate it from any other competitor. In reality, these are psychological prices because customers, valuing quality over other aspects, are willing to pay more.

Effective communication strategy

Without good communication that resonates with consumers, the price skimming strategy may be meaningless. Effective communication can help justify higher initial prices, create a sense of exclusivity and highlight the product’s unique benefits and features.

Communication is essential as the price skimming strategy progresses and prices are reduced over time. Customer engagement is just as important in this journey as providing customers with information about price changes and the reasons for subsequent price reductions. Advanced customer journey management is equally fundamental.

Flexibility in pricing strategy

Going for a skimming strategy, also known as temporary skimming prices, means being flexible. To this end, it is important to establish a competitive price analysis that allows adjusting prices to changes that may occur in the market or in the demand for the product.

This involves monitoring competitors’ products to ensure that the skimming is still effective and the product competitive. One of the important data in this regard has to do with revenue management. If they are being reduced, then the price skimming strategy has come to an end and needs to be replaced by another strategy that will allow continued profit from the product or service being marketed.