Business Studies – 3.3.2 Price | e-Consult
3.3.2 Price (1 questions)
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The most suitable pricing method in this scenario is skimming pricing. Skimming pricing involves setting a high initial price for a new product, targeting customers who are willing to pay a premium for early access or novelty.
Advantages of skimming pricing:
- Maximises initial profit: The high price generates significant revenue early in the product lifecycle.
- Recovers development costs quickly: The high profit margins help to recoup the substantial investment in research and development.
- Creates a premium image: A high price can signal high quality and exclusivity, appealing to certain customer segments.
Disadvantages of skimming pricing:
- Discourages price-sensitive customers: The high price may deter potential customers who are unwilling or unable to pay the premium.
- Attracts competition: High profit margins can attract competitors to the market, leading to price wars.
- Can lead to a slow uptake of the product: The high price may delay widespread adoption.
Example: Apple is a prime example of a company that successfully uses skimming pricing for its new iPhone releases. They initially launch the iPhone at a high price, targeting early adopters and tech enthusiasts. As demand softens and competitors enter the market, Apple gradually lowers the price to attract a wider customer base.