Price skimming is a time-honoured practice where brands target the ‘early-adopter-at-any-cost’, the technology geek who always needs the newest phone and the gaming fanatic who needs the latest release – and they need it now!
Examples abound:
Apple: When Apple first introduced the iPhone in 2007, it used price skimming by setting a high price for the product: $599 for the higher storage unit and $499 for the basic. The fact remains they still sold 6 million units in the first year.
Tesla: I’m always nervous of using Tesla in pricing examples, lest it all change tomorrow, but there is no doubt that they deployed aggressive price skimming in the launch of the Tesla range as electric cars hit the market.
Nintendo & Sony : Both the Nintendo Switch and Sony PlayStation 5 highlight the very heavy use of the tactic in the games console sector.
However, this approach is not limited to high-end brands or to the technology sector.
Whenever we launch a new product or a service to an audience who has a propensity to look for the next new thing, we have the opportunity to price skim: to attract the early high-payers before we need to concern ourselves with the market share or volume dynamics of price elasticity.
Just look at book launches from popular authors on Amazon, priced high to attract the desperate readers of the latest book in the trilogy then £1.99 a couple of months later for volume sales.
Longer-term thinkers will recognise that, as the product matures, it’s far easier to moderate price in order to seek volume than it is to raise prices. Experienced product launch teams will know that early sales at very high margins will encourage both senior management and sales teams as well as enhancing careers, far more than creating high-volume sales for a low-margin market entry, where internal detractors will proclaim that “anybody can sell the product at that price”.
The business sense is clearly evident in paying for the development of a product from its early high-margin sales, then leaving the marginal sale to much later in the life cycle.
Pricing gem:
Some consumers always go for the most expensive product from a selection, the one that the price tells them is the highest quality. They believe you get what you pay for and that they deserve the best. Don’t deprive them of that joy!
