Question
Price skimming, while potentially profitable, has several potential drawbacks. First, it can lead to a negative public perception as customers may view the high initial price as overcharging. Second, it can attract competitors who see the high profit margins and enter the market with a lower-priced alternative. Third, it relies heavily on the product being perceived as high-quality and innovative; if it fails to meet these expectations, customers may not be willing to pay the high price. Lastly, price skimming is not a long-term pricing strategy; once the market becomes saturated, the price must be lowered.
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This means considering two options: penetration pricing and price skimming. "Penetration pricing is a way to get a foothold in a market. Penetration pricing must be limited, either by cutting it off at a certain date or offering it to a limited number of people. If you get stuck on penetration pricing, you'll find yourself in no man's land. You may have plenty of clients, but they won't be paying you what you're worth. Price skimming can seem like a scary strategy. Maybe you're worried that if you try it, people will think you're overcharging and go elsewhere. That's a natural response, but if you get to market with a product that delivers great value before anyone else, it's important to remember that there is no agreed-upon fair price," Dill says.
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