SKIMMING PRICING
Definition
Skimming pricing, or the skimming strategy, involves launching a product at a high price to initially attract customers willing to pay the most (early adopters, premium segments), and then gradually lowering the price to reach broader segments. It is the exact opposite of penetration pricing: the goal is to maximize the unit margin at launch rather than volume.
Why it's important
- Maximize margins on initial sales volumes: early adopters are less price-sensitive, which helps fund R&D and initial marketing efforts.
- Strengthening the premium positioning: a high price lends credibility to the product’s value and innovation.
- Segmenting by time: Gradually lowering the price allows you to reach multiple target groups in succession without eroding the initial margin.
A concrete example
A smartphone manufacturer launches a new high-end model priced at €1,299. In the first six months, this price generates 60% of the product’s total margin despite modest sales volume. After nine months, the price drops to €999, opening up access to a broader market segment. At 18 months, an intermediate version is launched at €699. The weighted average margin remains significantly higher than what a single price of €999 at launch would have allowed.
How to measure/use it
Skimming requires a product that is perceived as innovative or differentiated, and a clearly identified target audience of early adopters. The price reduction trajectory (stages, tipping points) must be planned based on the product lifecycle and the arrival of competitors. Analytics tools help measure price elasticity by segment and identify the optimal timing for each price reduction without triggering excessive cannibalization.
Common Mistakes
- Keeping prices high for too long: leaves the field open to a competitor who matches a low introductory price.
- Lowering the price too quickly: frustrates early adopters who paid full price and damages the brand.
- Don’t rely solely on premium marketing: without compelling storytelling and a top-notch customer experience, the high price tag isn’t justified.
Learn more
- Research & Data: Analysis of perceived value and identification of early adopter segments.
- Solutions: Pricing Analytics to plan the price reduction trajectory.
- Consulting: Developing pricing strategies to manage the pricing lifecycle of an innovative product.
- Resources: Check out our pricing FAQ to compare Skimming and Penetration.
Mini FAQ
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