Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does skimming in pricing strategy involve?

1. Raising prices continually until market demand decreases

2. Setting a high initial price to maximize profit from early adopters

3. Offering discounts to attract budget-conscious consumers

4. Consistency in pricing regardless of market changes

The correct answer is: Setting a high initial price to maximize profit from early adopters

Skimming in a pricing strategy primarily involves setting a high initial price for a product or service in order to maximize profit from early adopters who are willing to pay a premium for the novelty or exclusivity of the offering. This approach is particularly effective for innovative products or unique services that face little immediate competition. By targeting customers who are less price-sensitive at the launch phase, a company can recover its initial costs and create a significant profit margin before gradually lowering prices to attract a broader market segment. The strategy leverages the perception of value among early adopters, who typically want the latest technology or trend before it becomes widely available. Over time, as competitors enter the market or the product becomes more standardized, the company can reduce prices to appeal to more price-sensitive consumers, further expanding its market share.