Which term describes setting a high price initially and then lowering it later?

Which term describes setting a high price initially and then lowering it later?

• A. Skimming
• B. Unit costs
• C. Agent or broker
• D. Direct selling

Answer: (A)

Price skimming is a pricing strategy where a firm launches a product at a high price to maximise early profits from customers willing to pay more, then gradually lowers the price to attract more price-sensitive buyers as demand shifts and competitors enter. This approach helps recover development costs and takes advantage of a product’s novelty or unique features. It differs from pricing based on unit costs, which uses cost-plus pricing; from using an agent or broker, which is about who sells the product; and from direct selling, which concerns the distribution channel rather than how the price is set.

Price skimming is a pricing strategy where a firm launches a product at a high price to maximise early profits from customers willing to pay more, then gradually lowers the price to attract more price-sensitive buyers as demand shifts and competitors enter. This approach helps recover development costs and takes advantage of a product’s novelty or unique features. It differs from pricing based on unit costs, which uses cost-plus pricing; from using an agent or broker, which is about who sells the product; and from direct selling, which concerns the distribution channel rather than how the price is set.