Which of the following statements pertaining to a market skimming pricing strategy is not true?

A market skimming pricing strategy involves setting a high initial price for a new product to maximize revenue from market segments willing to pay the high price. This approach is not favored when unit costs fall significantly with increased production volume (i.e., economies of scale or experience curve effects). Such cost structures are better suited for a market penetration strategy, where a low initial price is set to capture a large market share quickly, thereby increasing production volume and driving down unit costs. Skimming typically starts with lower volumes, making it incompatible with a strategy reliant on high-volume cost advantages.

B: Skimming is most effective when early adopters are relatively insensitive to price, allowing the firm to capture a high margin from this segment before lowering the price for others.

C: Insufficient market capacity and high barriers to entry for competitors protect the firm's high price from being undercut, making skimming a viable and profitable strategy.

D: A high price often signals superior quality and prestige, which attracts the target segment for a skimming strategy and helps justify the premium price.

1. Kotler

P.

& Keller

K. L. (2016). Marketing Management (15th ed.). Pearson Education. In Chapter 16

"Developing Pricing Strategies and Programs

" the conditions for market-skimming pricing are outlined. It states

"Market skimming makes sense under the following conditions: ... (3) the high price does not attract more competitors to the market; (4) the high price communicates the image of a superior product." This supports options C and D. It contrasts this with market-penetration pricing

which is favored when the market is highly price-sensitive and production costs fall with accumulated production experience. This directly contradicts the condition in option A for a skimming strategy.

2. Dean

J. (1976). Pricing policies for new products. Harvard Business Review

54(6)

141–153. (Reprint of original 1950 article). In this seminal article

Dean contrasts skimming and penetration pricing. He notes that a penetration policy is attractive when a company can achieve "substantial economies of scale in production" and when demand is elastic. Conversely

a skimming policy is appropriate when demand is inelastic (supporting option B) and when the firm wishes to limit demand to its production capacity (supporting option C).

3. Nagle

T. T.

& Müller

G. (2017). The Strategy and Tactics of Pricing: A Guide to Growing More Profitably (6th ed.). Routledge. In Chapter 13

"Pricing Strategy

" the authors explain that a skimming strategy is appropriate when a segment of the market is price-insensitive and willing to pay a premium for value. They explicitly state that a penetration strategy is used to "drive costs down the experience curve" to create a competitive advantage

which aligns with the condition described in option A being unsuitable for skimming.