PRICE SKIMMING Meaning and
Definition
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Price skimming is a pricing strategy employed by businesses to introduce new products or services into the market. It involves setting a high initial price for the product or service and then gradually reducing the price over time. This strategy is typically used when there is limited competition and a high demand for the product or service.
The term "price skimming" is derived from the idea of "skimming" off the top of the market demand curve, capturing the maximum price that consumers are willing to pay. By initially charging a higher price, businesses can capitalize on the willingness of early adopters or those who highly value the product to pay a premium. As demand begins to wane or competition intensifies, the business gradually lowers the price to attract price-sensitive customers.
Price skimming allows businesses to recover their initial investment quickly and generate a profit before competitors enter the market. It is commonly used for innovative or technologically advanced products where consumers are willing to pay a premium for the perceived value or exclusivity they offer.
However, price skimming can be a risky strategy as it may invite competition sooner than expected. Competitors may offer similar products at lower prices, eroding the business's market share. Additionally, if customers perceive the initial price as too high, it may deter them from purchasing the product altogether.
Overall, price skimming is a pricing approach that aims to maximize revenue by setting high prices initially and gradually lowering them over time, relying on the willingness of early adopters to pay a premium.
Etymology of PRICE SKIMMING
The term "price skimming" originated from the combination of the words "price" and "skimming".
The word "price" dates back to the Middle English period, derived from the Old French word "pris" meaning "value" or "worth". It can also be traced back to the Latin word "pretium", which has a similar meaning.
The word "skimming" in this context refers to the action of "skimming" or "taking off" the topmost layer. It dates back to the late 16th century and is derived from the Middle Dutch word "schimmen", meaning "to skim or to schim".
When combined, "price skimming" alludes to the strategy of setting a high initial price for a product or service and eventually lowering it over time. The term is commonly used in marketing and business contexts.
