Thursday, March 4, 2010

Market-Skimming Pricing

Market-Skimming Pricing is when "companies invent new products and set high initial prices to "skim" revenues layer by layer from the market" (Kotler 270). There are three conditions that are necessary for market skimming to make sense and actually work. The product's quality has to match the price and customers have to be willing to pay the price, the costs of producing a smaller volume won't end up hurting the producer, and it must be hard for competitors to enter into the market and under price the product (Kotler 271).

A great example of a company that actually did this tactic was Apple in it's release of the iPhone. Initially, the Apple iPhone was priced at $599 for it's most expensive model. However, just two months later, Apple lowered the iPhone's price by $200 and then again ten months later by $100. Apple also met all three requirements for implementing the market skimming technique. It had huge anticipation for the iPhone before it came out, which led to many customers willing to pay the high initial price. This allowed Apple to capitalize and earn more revenue just off the excitement of the consumers. There also couldn't have been a negative effect of producing a small volume since even though it was hard to find iPhones due to places being sold out, dedicated customers were willing to wait until they came available. The iPhone was also one of a kind when it first came out (which it still pretty much is) and had no competition, therefore Apple did not have to worry about other company's competing and undercutting their price.

Tyler Stinde, Section E


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