Price skimming

What it means

Price skimming is a strategy in which a company launches a new product at a high price and gradually lowers it. It first „skims the cream“ from customers willing to pay most for novelty, then reaches more price-sensitive groups.

It works best when the product offers obvious new value, competitors cannot copy it quickly and some customers have low price elasticity. Electronics, technology and luxury services are typical examples.

The opposite is penetration pricing, entering with a low price to win market share quickly. Choosing between them is part of pricing and positioning.

How it works in practice

Skimming helps recover development and launch costs faster. The high margin in the first phase funds marketing and further development before competitors arrive.

Services can use a similar approach: a new advisory service might first be offered to selected clients at a premium price and, once standardised, made available more widely at a lower price.

Timing and communication matter when cutting prices. Customers who paid the high price must not feel cheated, so price cuts are often paired with a new product version.

What to watch out for

A high price attracts competitors. If the product is easy to copy, rivals will come in cheaper before the company has won customers and recovered its investment.

When selling to consumers, price indication rules apply. Discounts must show the lowest price in the previous 30 days, so artificially raising the price before a „sale“ is prohibited.