PRICE SKIMMING AND PENETRATION EXAMPLES TV

PRICE SKIMMING AND PENETRATION EXAMPLES TV

But, early adopters of new technology can be the first to gain a new type of tv – if they are willing to pay a higher price. Only very few customers are willing to pay $7,000 + for a tv. However, there is definitely an element of price skimming. Early sales also did not have the same economies of scale. Part of the fall in price could be due to improved technology and lower costs of production. Source: By 2019 a 65-inch 4K LCD TV is predicted to fall to $913 – below $1,000 for the first time. A year later the price was around $7,000 ( USA today) Today prices are falling below $1,000. In 2012 the first 4K Ultra High-Definition TVs went on sale in the U.S. Price is only one small factor, and so they are willing to pay the very high prices. Therefore, this group who are keen to buy, typically have very inelastic demand. It is part status symbol, part desire to have the best mobile phone. queues of customers outside Apple Stores). When the latest mobile phone comes out, some consumers want to buy as soon as possible. Price skimming also requires a degree of monopoly power – primarily strong brand loyalty. Price skimming works well for innovative and high tech goods that certain groups of consumers eagerly anticipate. Those consumers who are prepared to wait will benefit from lower price. Price skimming can enable a firm to increase its overall profits – though there is a risk that the customers who pay the initial high price may later feel cheated.

When these consumers have bought the good, the firm can then reduce the price to attract a wider group of consumers who are more price sensitive (elastic demand) The logic of price skimming is to take advantage of customers who have inelastic demand and are willing to pay the high price. Price skimming is a business strategy to set a high price on entry to the market and then reduce the price over time.

Price skimming and penetration examples