Question

Many mobile phone companies charge a high price when releasing a new mobile phone with cutting-edge technology. This allows them to generate a substantial profit. When rivals create similar products, the price of that specific product is dropped to gain market value and increase sales. Other electronic products, such as fridges, televisions, and air conditioners, are priced similarly. This is because there are a lot of competitive markets and several other brands offering similar products.

Explain the pricing strategies used in the above case.

Answer 1

1. Price skimming is a strategy where a company sets a high initial price for a new product to target customers who are willing to pay more. Later, the price is gradually reduced to attract more budget-conscious buyers. This approach helps the company maximise profits from early adopters before lowering the price to compete in a the broader market.
2. Competitive pricing is a strategy where a business sets the price of its products or services based primarily on what competitors are charging, rather than solely on production costs or perceived customer value. The idea is to remain attractive in the market by positioning prices relative to rivals.