Market-skimming pricing is a pricing strategy used by companies to “skim” revenues layer by layer from the market.  This strategy is used by companies that have new and usually innovative products.  A company pursuing this strategy will set a high initial price for the product to maximize their revenues off of customers who are willing to pay a higher price for something new.

For example, think back to when DVD players were first introduced, or when new TVs come out.  At first they are priced very high, but over time their price comes down.  These companies are pursuing the market-skimming pricing strategy, they are maximizing their revenues from customers who are willing to pay more money to have it early and then lowering their price later to attract new customers.

A market-skimming pricing strategy is only effective if the product’s image and quality warrant the product to have that high of price.  There must also be enough consumers willing to pay that price.  The company must make sure that a competitor cannot easily enter the market and undercut the price of the product.  If the company will operate at a loss due to fixed costs and selling at a smaller volume a market-skimming pricing strategy is not the strategy the company should pursue.