What is meant by skimming pricing method? State any two advantages and any two disadvantages of skimming pricing method.

Question

Accepted Answer

(This is a duplicate of question at index 33 — same question on skimming pricing)

Skimming pricing method involves selling a product at a high price initially so that fewer sales are needed to break even. This strategy is employed to reimburse the cost of investment in original research and targets early adopters with relatively lower price sensitivity.

**Two Advantages:**

1. It helps recover the research and development costs associated with the development of a new product.

2. If the company caters to quality-conscious consumers, this strategy can work very well for the company in establishing a premium brand image.

**Two Disadvantages:**

1. High prices may encourage competitors to enter the market, as they see the potential for high profit margins.

2. The strategy may result in slower market penetration as only a small segment of customers can afford the product initially.