ICAEW BIP · Chapter 4 · Question 8 of 11
In which of the following situations would market skimming be most appropriate for a new product?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The product is innovative, has no close substitutes and early buyers will pay a high price for it
Explanation
Skimming charges a high launch price to customers who value novelty, then lowers the price over time. It works best when the product is new and different, demand from early buyers is relatively inelastic and barriers to entry protect the high price. High price elasticity, easy imitation or a need for volume all favour penetration pricing.
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