Skimming price method is the method of pricing in which the product is introduced in the market with a very high price. High price is kept for recovering the cost of production quickly. Such entrepreneurs normally bring something new in the market with more utility value. Product is introduced with a lot of expenditure on advertisement. High price tends to bring back revenue quickly. High class people are the target of such method of pricing e.g. Philips introduces its new product with the same method, Rumalaya also follows the same trend.
Advantages of skimming price method:
1. High recovery: The cost of production and investing can be recovered quickly by this method.
2. Quality product: Such method is applicable mainly to quality product. The entrepreneur is thus able to sell quality product.
3. Encourages innovation: Any innovative idea about product can be quickly introduced by such method. Hence, entrepreneurs normally are in search of innovations. Thus, innovation is encouraged.
Disadvantages of skimming price method:
1. High promotional cost: In this method there is heavy expenditure on advertisement and other promotional techniques. All the entrepreneurs may not have such financial strength,
2. Short rim: This method is applicable only till the competitors are not entering. As the competitors enter from window, the price skimming method has to leave from the door,
3. Innovation: Such method is applicable only to innovative products and ideas cannot be introduced for normal goods.
