Disadvantages of Skimming Pricing
Price skimming is a marketing strategy used by many business owners. The pricing strategy is important in a business to survive in the industry.
It can also help to obtain profit as long as you know how to manipulate the price skimming.
Employing pricing strategies is necessary in order to cope with the competition as well as the prevailing production costs. Apparently, a business owner should know how to deal with the prices offered by competitors. This means that when your competitor reduces the price of the product similar to yours then you should also reduce your price. In like manner, you should also cope up with the production costs. However, you should decide the price increase that you can afford in order to make your customers satisfied. There are two types of pricing strategy commonly used by business owners such as penetration and skimming. Either of the two pricing strategy has its own advantages and disadvantages.
Price skimming is a pricing strategy that employs high price for a short period until such time that the price of the product eventually hits the market. Nevertheless, you should keep in mind that the success of this strategy depends on the inelasticity of demand. The good point about using price skimming is that you can have the opportunity to take pleasure with the high profits in just a short time. On the other hand, this price strategy has its advantages and disadvantages. One of the advantages of price skimming is increasing the price of the new launched product. In this way you get back the cost on developing as well as marketing the product.
In like manner, price skimming is also effective in segmenting the product in the market. By using skimming the business owner can divide the market into segments as well as reduce the price into different segments in order to acquire maximum profits. Dealers also take advantage in price skimming in such a way that the high markups of the supplier are transferred to the dealers. Likewise, the good point about this pricing strategy is that you can get higher profits because most buyers are particular about prestige and not the price. That is why even if the product involves high mark ups it is still saleable. It is also advantageous in competing brands.
On the other hand, price skimming also has its disadvantages for some business owners who do not have the ability to cope up the high prices of the competitors. Obviously, not all business owners have the ability to deal with the price competition. Another disadvantage is that there are buyers associating the quality of the product with the price. That is why in order to avoid the disadvantage and at the same time enjoy the benefits of the price skimming; you should learn the possible ways on how to deal with it.