Evaluating Skimming Pricing Strategy: Benefits and Drawbacks PPT

This PPT slide, part of the 23-slide Price War Strategy PowerPoint presentation, outlines the advantages and disadvantages of a skimming pricing strategy compared to penetration pricing. It emphasizes the primary goal of skimming: to maximize consumer surplus. Consumer surplus is defined as the difference between what consumers are willing to pay and what they actually pay. By setting higher initial prices, businesses can capture more of this surplus, which is particularly beneficial when introducing new products.

The pros section highlights several key benefits. First, it allows companies to maximize margins, leading to what are termed “monopoly profits.” This strategy also helps build a strong brand image, as consumers often associate higher prices with better quality. Additionally, skimming can facilitate market segmentation, enabling businesses to lower prices for more price-sensitive consumers later on.

On the flip side, the cons section presents significant challenges. Slower market penetration and adoption rates can hinder overall growth. Inventory turnover may also be lower, impacting cash flow. The high margins associated with skimming can attract new competitors, which may lead to increased market share competition. Furthermore, the focus on maintaining high margins might result in operational inefficiencies, as there may be less incentive to control costs.

The slide concludes with an example, indicating that this strategy is particularly effective for high-end electronics, where early adopters are less price-sensitive. This context reinforces the strategic implications of skimming pricing, making it clear that while it offers substantial benefits, it also requires careful consideration of market dynamics and operational capabilities.

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Pricing Strategy Market Segmentation