Which pricing method involves setting a high price at launch and lowering it later?

Which pricing method involves setting a high price at launch and lowering it later?

• A. Penetration pricing
• B. Skimming
• C. Price discrimination
• D. Cost-plus pricing

Answer: (B)

The idea being tested is skimming pricing. This method sets a high price when a new product launches to capture the most eager buyers who are willing to pay a premium, helping to recover development costs and establish a premium image. After the initial demand from those early adopters tapers off, the price is lowered to attract more price-sensitive customers and widen sales. This gradual reduction over time is the hallmark of skimming. Other options don’t fit this time-based, high-then-lower pattern. Penetration pricing would start with a low price to gain market share quickly, not a high launch price. Price discrimination involves charging different prices to different groups or markets, not necessarily following a single high-to-lower trajectory. Cost-plus pricing bases price on production costs plus a markup, regardless of launch timing or market segments.

The idea being tested is skimming pricing. This method sets a high price when a new product launches to capture the most eager buyers who are willing to pay a premium, helping to recover development costs and establish a premium image. After the initial demand from those early adopters tapers off, the price is lowered to attract more price-sensitive customers and widen sales. This gradual reduction over time is the hallmark of skimming.

Other options don’t fit this time-based, high-then-lower pattern. Penetration pricing would start with a low price to gain market share quickly, not a high launch price. Price discrimination involves charging different prices to different groups or markets, not necessarily following a single high-to-lower trajectory. Cost-plus pricing bases price on production costs plus a markup, regardless of launch timing or market segments.