![]() ![]() Therefore, the profit margin will be high. The price skimming strategy will cause the product to be priced at the maximum. ![]() A company with a higher profit margin proves that it is more profitable and has more effective cost control than its competitors. Margin is a handy indicator when comparing companies in the same industry. This index shows how many dong of income each dong of revenue is generated. Margin is the rate calculated by dividing your gross income or net profit by sales. Pros and Cons of Price Skimming Strategy Pros of Price Skimming Strategy High-Profit Margin Meanwhile, Price Skimming is a strategy to help businesses recover the cost of developing a product of greater value (in the high-involvement group) that they have to spend initially. Usually, Penetration Pricing will be suitable for products such as basic household appliances (under the low-involvement group), because the price can be a major factor in a customer’s purchasing decision. Price skimming is a pricing strategy that is the opposite of Penetration Pricing - one that focuses on launching a product at a lower price point to increase market share. Once they find that your product is profitable, they will quickly chase you. Note: This strategy can also encourage competitors to enter. Once these goals are fulfilled, businesses can lower costs to attract another segment of more price-sensitive customers while retaining a competitive advantage over fake products appeared on the market. In other words, the business’s goal at this stage is to increase revenue as much as possible. “Capital recovery” as quickly as possible, becomes the main goal of every business. Very few customers realize the enormous time and cost that brands spend to develop a complete product in the market, especially when this brainchild has a short lifespan and is easily replaced. Therefore, the price skimming strategy is often used to create a positive financial boost, maximizing revenue and profit for the company as soon as the product/service appears on the market, especially when The demand is high, and the competition has not appeared yet. Cell phones and computers are examples of traders using this pricing strategy.Īs an owner, there will be many instances of sudden revenue drops or unexpected cost increases. In the later stages of the life cycle, when competition occurs and other market factors change, prices are then lowered. are often suitable for price skimming strategy. Products based on high technology, investment in research and development, good customer service, high-end brand image, selective distribution system, etc. A high initial price can be used to keep a demand, while the potential production scale is not sufficient to meet market demand.The production cost of the unit of a product when producing a small volume of the product is not too high.The initial high price does not quickly attract new competitors.This new item of high quality and high price contributes to the image of a high-quality product. ![]()
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