Market Skimming

By: Alexandre de Carvalho and Ndalu Zivane

Definition → Market skimming, also known as price skimming, is a pricing strategy employed by businesses to maximize their profits by setting high initial prices for a product or service and then gradually lowering the price over time. This strategy is typically used for new or innovative products that have a unique selling proposition or offer significant value to customers.

Examples of companies/businesses using Market Skimming:

1. Apple: Apple is known for using market skimming when launching new products, particularly its iPhone lineup. Each new iPhone release is typically priced at a premium, targeting early adopters who are willing to pay a higher price to own the latest and most advanced technology. Apple gradually lowers the prices of older iPhone models or introduces more affordable options to attract a wider customer base.

1. Nike has achieved success with their pricing strategy of price skimming. They set higher prices for newly released products, then slowly lower the prices over time. This allows them to make a profit, even when demand has slowed.

1. Sony/PlayStation: Sony has employed market skimming with its PlayStation gaming consoles. When a new PlayStation model is released, it is typically priced higher to cater to avid gamers who are eager to experience the latest features and performance enhancements. Over time, as the console matures and competition increases, Sony reduces the price to attract more price-sensitive consumers and maintain market share.

Uses of Market Skimming:

• New products that are unique or very different from other products on the market.

Features of Market Skimming:

• A high price is set to maximise short-run profits.
• When competitors enter the market with similar product then this will cause a price to fall.

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