Implementing a skimming strategy

Learn more about skimming pricing and how PricingHUB can help you implement it effectively. PricingHUB is a solution that helps you optimise your pricing using artificial intelligence to multiply your sales and boost your margins.

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What is a skimming strategy?

A skimming strategy is a pricing strategy that aims to skim, in other words to separate yourself from part of your customer base and keep only those customers who are the most profitable. To achieve this, the strategy aims to apply high prices, with the possibility of subsequently lowering them. This selection by price allows you to benefit from a top-of-the-range image by enhancing the perceived image of a product or service by the targeted segment. This strategy, which is particularly effective when price elasticity is positive, prioritizes margin over quantities sold in order to maximise profit.

Why choose a skimming strategy for businesses?

Applying a skimming strategy has a number of advantages and disadvantages for businesses.

The advantages of a skimming strategy

The advantages of a skimming strategy include a variety of benefits that can strengthen a company’s competitive position in the market. Let’s review some of them.

Maintaining a top-of-the-range image

There are many advantages to a penetration strategy. Aggressive pricing makes it possible to win over and retain customers.

Indeed, thanks to this strategy, a company that offers its products at lower prices than the competition can win market share by attracting customers from other companies. Once the new customers have been won over, the company simply needs to retain them by offering them an increasingly high-quality and unique product, which it can then offer at a slightly higher price over the long term.

Getting a better return on investment

This strategy also allows for greater profitability and an optimal return on investment. Applying a high price to the launch of your product can help to amortize all the costs associated with it. The profits generated by high margins can quickly pay off the research and development costs incurred prior to product launch.

Flexibility in pricing

Thanks to high margins, the company will be able to adapt to its market and the competition. Following a high-price launch, the company will lower the price of the product when its competitive advantage is reduced, thereby reaching a wider target.

The disadvantages of the skimming strategy

The disadvantages of the skimming strategy encompass several challenges that can impact a company’s ability to maintain its market position. Let’s dive into these challenges.

Draws competitors into the market

The skimming strategy attracts competitors because setting a high price can stop some customers from buying, who may be snapped up by competitors who have had time to offer identical products or services, but at a lower price. What’s more, this strategy is not a good solution in a crowded market. A company that enters a market full of competitors and imposes high prices will drive prospects away to those same competitors. It is better to turn to a strategy of alignment, unless the company’s offering has a new concept or new capabilities that make it indispensable to demand.

A strategy dependent on demand

Another disadvantage of this strategy is that it is highly dependent on the inelasticity of demand. It is impossible to set a price increase on elastic demand, i.e. demand that will react strongly to changes in the price of a good or service, without it falling. That’s why it’s important to analyse the price elasticity of your offer beforehand.

Apple and its successful skimming strategy

Finally, to demonstrate the real impact of such a strategy on your company’s image and results, we can quickly mention the case of the multinational Apple. The American brand launches the new iPhone at a high price every year in September, then lowers the price over time. Initially, therefore, it acquires the highest-income customers, generating optimum profitability. Then, over time, the company attracts targets with more elastic demand thanks to lower prices. This enables them to remain flexible in the face of competition. Apple also maintains an important position in the telephony market thanks to its brand image, which is the result of this cream-skimming strategy. It is thanks to an effective communication strategy and positioning that they attract their targets, by presenting their products as the most technologically advanced.

Implementing a successful skimming strategy with PricingHUB, Pricing Saas

Thanks to its AI, the PricingHUB solution enables you to implement a successful skimming strategy.

Here are the various services offered by the platform to help you implement this skimming strategy within your business:

Tracking competitors’ prices and automating pricing to respond to possible price changes
Continuous price elasticity testing to optimise your pricing and adapt it to changing market demand
Define the price elasticity of different core targets.
Optimal price proposal in line with the business objectives you define

At PricingHUB, we’re here to help you with your pricing projects. Don’t hesitate to contact our team of experts to see how we can help you.