Economics Homework Help

Price skimming strategy is a new product strategy that results in a high initial product price being reduced over time as demand at the higher price is satisfied. Research a product or service that may have entered the market with a high initial price and now the demand at the higher price is satisfied. Discuss why you believe consumer demand has changed for this product or service which resulted in satisfaction of the market.

POST 1

Price skimming is a price approach which requires a high price prior to additional rivals enter the market. For technical items, when the demand for a service is not constant, skimming prices are mainly employed (Du & Chen, 2014). The typically released product with an over-the-counter price plan is market-unique, clients eager to pay the item premium and well ahead of competitors.

Apple is the finest and most suitable illustration of the efficient application of the price skimming method. The Company pays greater attention to the dynamic pricing, while setting typically expensive levels for its new goods, attaches great emphasis to consumer expectations (Ugarthi & Ramu, 2018). XR phones for 77000 rupees have been charged in India yet are now available with some 48000 rupees. In addition, the price was lowered to compete with other smartphone companies when the consumption target was met.

This campaign has resulted in high sales and the quality standards of customers. The respectful Apple image, which also performed a key influence in price selections, was also a source of high demand. The firm recovered its development expenditures with a substantial reduction in two months because of the recent product presentation with unique, innovative progress that was not previously introduced (Robert, 2020). In addition, there are clients known as innovators or adapters prepared to purchase the new items at higher prices, resulting in market satisfaction. The first targets are mostly the first adopters, and then when the service enters the maturing stage, prices fall to the much more price-sensitive groups. Word of mouth is also important, as the initial adopter would also spread the word and persuade families and friends to buy the goods.

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POST 2

Companies apply different strategies to determine the best price for their commodities. The primary driving force is profit maximization, while considering the marginal costs involved in their production (Beltis, 2019). Some of the approaches include competitive pricing, price differentiation, and bundle pricing. Moreover, there is price skimming, where companies set high prices for new commodities into the market (Beltis, 2019). The value depends on the novelty or innovation involved in the production and expected earnings from the product line.

The management maximizes on product’s high demand after launching and later lowers the price after achieving the target goals. According to Riley (2009), Apple iPhone and Sony PlayStation 3 are some of the examples of products that had higher prices during their launch. For instance, the price of Sony PlayStation 3 was $ 599 shortly after its launch and was bought by lots of customers Riley, 2009). The company later dropped the price to $ 200 after breaking even, though there might be some external factors that led to the price decline.

One of the forces might market rivalry, where other companies started producing commodities to match the PlayStation features. The competitors include Xbox, Nintendo, Sega, WII, OUYA, Kyrio, YuMe, Gamevice, Sling TV, and 505 Games, who had to strategies and maintain their competiveness in the market (Riley, 2009). The other factor could be distribution problems, where retailers found it unprofitable to trade with the Sony PlayStation 3. The retailers failed to receive higher margins and resulted to selling other applications. Moreover, demand kept on reducing due to the high number of price-sensitive customers. The consumers are likely to purchase cheaper products regardless of their novelty and innovation. They might search alternative products from rival companies to satisfy their demand (Riley, 2009). The factors necessitated the company to lower its price to avoid losing sales.

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