price skimming- meaning and objectives

Price skimming refers to the strategy of selling a product or a service at a high price to gain a high profit, while sacrificing high growth in sales. A high price can be charged when an organisation has substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply

The objective of a price skimming strategy is to grab the consumer surplus (i.e. the difference between the
price the consumers are willing to pay and the actual price of a product or service). If this is done successfully,
then theoretically the organisation will be able to charge an amount not less than the maximum amount
customers’ are willing to pay. In practice, however, it is impossible for a firm to grab this entire surplus. Price
skimming is effective only if the demand of the product or service is inelastic