Which pricing approach involves charging a high price at launch to maximise profits on each item?

Which pricing approach involves charging a high price at launch to maximise profits on each item?

• A. Competitive Pricing
• B. Extension Strategies
• C. Penetration Pricing
• D. Skimming/Creaming

Answer: (D)

Price skimming is the idea here. It means setting a high price when a new item first launches to capture as much profit as possible from customers who are willing to pay a premium for something new or unique. This high margin helps recover development costs quickly and can create a premium image. As sales slow or as competitors enter, the price is gradually lowered to attract more price-sensitive buyers, extending the product’s life in the market. This approach contrasts with pricing that starts low to win market share quickly, or pricing that simply mirrors competitors. The term “cream” in this context is about taking the top profit from the most willing-to-pay customers at the start.

Price skimming is the idea here. It means setting a high price when a new item first launches to capture as much profit as possible from customers who are willing to pay a premium for something new or unique. This high margin helps recover development costs quickly and can create a premium image. As sales slow or as competitors enter, the price is gradually lowered to attract more price-sensitive buyers, extending the product’s life in the market. This approach contrasts with pricing that starts low to win market share quickly, or pricing that simply mirrors competitors. The term “cream” in this context is about taking the top profit from the most willing-to-pay customers at the start.