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Price skimming

Selling a new (or much improved version of a product) at a high price for a relatively short period of time. The focus and main aim – at least in the short-term – is on maximising sales revenues and, ultimately, profit as opposed to sales volume and market share. Success is dependent upon demand for the product being price inelastic. Price skimming is common to unique, innovative products and is a common strategy used in the fashion, toy, computer software and pharmaceutical industries. The aim is to gain as much profit as possible while the product is unique, ie before competitors enter the market place with a similar product. It is used to target what are termed ‘early adopters’ of the product ie customers who are willing to pay a high price in order to get the product as soon as possible, as their need for the product or understanding of its value, is greater than others, and so they are less price sensitive.

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