Starting with a higher price won’t deter your early adopters, and as you lower the price over time, you’ll attract more price-sensitive consumers. In some cases, a lower starting price, in the beginning, can also increase customer price sensitivity, making it impossible to raise rates in the future without losing sales.Īs discussed before, price skimming is an effective way to segment your customer base, potentially allowing you to earn the greatest possible profits from different types of customers as you reduce the price. In addition, you’ll have the breathing room you need to lower prices as competitors enter the market. Higher prices at the beginning of a product’s life cycle enable you to build a prestigious brand image that actually attracts status-conscious consumers. Price skimming can also create the perception that a product is a high-quality “must-have” for those early adopters who can’t live without the latest tech products. It Helps Create and Maintain Your Brand Image The bottom line is, if you invested all of your cash flow and resources into the development of a gadget or service no competitor can match, then you should be able to charge higher prices during the launch to recover the bulk of your investment and hopefully fund further developments.Ģ. Companies like Apple benefit from high short-term profits during a product’s introduction, and the initial higher prices are justified by the technological breakthroughs they achieve.

Higher Return on InvestmentĬharging the highest initial price during the launch of an innovative product, particularly in high-tech industries, can help your company recoup research and development costs as well as promotional expenses. Even now that CRMs are more normalized in the market, few companies have employed skimming in the wake of Salesforce’s successful strategy.Īdvantages of Price Skimming 1. Later on, it was able to scale down to accommodate smaller businesses that also clamored to use the cutting-edge CRM. The upper tiers of its market-which, in B2B SaaS terms, means enterprise-level deals with large companies-enabled Salesforce to make a tremendous amount of revenue quickly.

The radical nature of its cloud product made Salesforce a prime example of a company whose tech justified a price-skimming strategy. Salesforce was the first company of its kind to make its CRM available at all times through the cloud. The company provoked an entire paradigm shift in the SaaS industry to power its pricing strategy. Salesforce was one of the key proponents of the price-skimming philosophy in SaaS. The company’s command of so many successful product launches and its corresponding price-skimming strategy is aspirational for any technology company. Unit costs are not particularly an issue for a company the size of Apple.Īs a result, Apple is perfectly placed to exploit the benefits of price skimming to the fullest.

Its expected sales volume is so high, as is its speed of developing new products, that lowering prices throughout the skimming cycle will have little to no effect on its overall sales volume.

It uses high pricing to signal the higher quality of its new product, a perception reinforced by the rest of its product array ( the components of which are all at various later stages of the skimming cycle).

It does not have immediate competition that’s able to undercut them.

It has a huge number of loyal customers who already see the brand as immensely credible and attractive.

That’s because Apple ticks all the boxes necessary for price skimming to work, including the following: With each new product offering, Apple’s prices for newly released products seem to be so high that they’re almost dissuasive - and yet, there are always queues outside Apple stores on iPhone release days. This might not strictly be SaaS, but Apple’s approach to product pricing epitomizes price skimming in a way that almost anyone will recognize.

Let’s take a look at some examples of price skimming that demonstrate what contexts are ideal for this pricing strategy. But despite the self-evident charms of price skimming as a dynamic pricing model, you’ll need a number of factors in place for it to be truly effective. Price skimming examples are mostly seen among tech giants, like Apple, Samsung, Sony, and other companies that develop new technologies that they know are high in demand.

Penetration pricing examples