Question

Bert's company is about to release a new electronics product. The electronics product is estimated to have a short life cycle before it is replaced by an upgraded one. The company would like to recover the capital spent to produce the product. It therefore decides to charge the highest possible price for the product upon release. Bert's firm recognizes this might provide an advantage to competitors who may release the product at a lower price, but it believes customers will feel that the higher price signals higher quality. Refer to Scenario 12.3. What type of pricing objective has Bert's firm adopted?

Answer 1

Answer: The answer is price skimming.

Explanation:

The price skimming is a form of price discrimination overtime rather than space. It is a situation where a company wants to take the advantage of some buyers willing to pay a higher price for a product than other because, To them the product has a high present value price in order to earn extra money from such buyers.

This type of objective is favoured where the following condition exist

1. There are enough buyers who want to pay higher price.

2. The higher price will not quickly attract entry by competitors.

3. The demand for the goods is highly inelastic, in cases whereby buyers are not price sensitive and therefore, do not react to higher prices.

4. If the Market is a narrow one

5. If the emphasis is not on high volume production and sales.