AQA · GCSE · Business

    Course version: 8132 · Version from Sept 2017

    Price, product, promotion and place (4Ps): price skimming

    Full specification wording

    The elements of the marketing mix: price, product, promotion and place (4Ps): price skimming

    Price skimming sets a high initial price when a product launches, then lowers it over time.

    Checked against the AQA 8132 specification (opens in a new tab) on .

    • Point 3 of 80
    • 2 key terms

    Study notes

    From the checked teaching notes for this specification point.

    The idea

    Price skimming sets a high initial price when a product launches, then lowers it over time. It works when early buyers are relatively price-insensitive and want the newest technology, so the business earns high revenue per unit before rivals enter. A phone launched at £899, later cut to £749 and then £599, shows the pattern. Skimming suits innovative or premium goods with limited competition and strong branding. It recovers development costs quickly and signals quality, but high prices can attract competitors and deter some buyers. It differs from penetration pricing, which starts low to build share.

    What earns the marks

    • Defines price skimming as charging a high launch price that is reduced over the product's life cycle.
    • Explains that early adopters are relatively price-insensitive and pay more for newness or prestige.
    • Links skimming to innovation, limited competition and strong branding, which support a premium price.
    • Explains the benefit of recovering high development costs quickly while demand is inelastic.
    • Contrasts skimming with penetration pricing, which starts low to win market share quickly.
    • Evaluates drawbacks: high margins attract rivals, and some potential buyers are priced out early.

    Common mistakes and how to put them right

    • Confusing skimming with penetration pricing.

      Put it right: Skimming starts high and falls, while penetration starts low and may rise.

    • Assuming skimming suits every new product.

      Put it right: It needs low price sensitivity, novelty or strong branding.

    • Treating the price as fixed forever.

      Put it right: Skimming involves planned reductions over time.

    Exam tips

    • Define the term briefly, then apply it to the case business rather than leaving it abstract.
    • Use the data given, such as launch price and later price cuts, to support your analysis.
    • When evaluating, weigh higher early revenue against lost sales and quicker competitor entry.

    Try the lesson

    The start of the The elements of the marketing mix: price, product, promotion and place (4Ps): price skimming lesson, made from checked teaching notes for this specification point.

    Have a go first

    Which pricing strategy involves setting a high initial price for a new product and then lowering it over time?

    Listen

    Price skimming sets a high initial price when a product launches, then lowers it over time. It works when early buyers are relatively price-insensitive and want the newest technology, so the business earns high revenue per unit before rivals enter. A phone launched at £899, later cut to £749 and then £599, shows the pattern. Skimming suits innovative or premium goods with limited competition and strong branding. It recovers development costs quickly and signals quality, but high prices can attract competitors and deter some buyers. It differs from penetration pricing, which starts low to build share. A strong answer earns marks for these points. Defines price skimming as charging a high launch price that is reduced over the product's life cycle. Explains that early adopters are relatively price-insensitive and pay more for newness or prestige. Links skimming to innovation, limited competition and strong branding, which support a premium price. Explains the benefit of recovering high development costs quickly while demand is inelastic. A common slip: Confusing skimming with penetration pricing. Instead, skimming starts high and falls, while penetration starts low and may rise. Exam tip: Define the term briefly, then apply it to the case business rather than leaving it abstract.

    See it

    A top-down flowchart. It begins with a node labelled Product launch, which leads to High initial price. From High initial price, one arrow leads to Early buyers relatively price-insensitive, which leads to High revenue per unit, which leads to Recovers development costs quickly. A second arrow from High initial price leads to Price lowered over time, which leads to Later price cuts. A third arrow from High initial price leads to High margins attract rivals, and a fourth arrow from High initial price leads to Some buyers priced out early.
    Shows how price skimming starts with a high launch price, earns high revenue per unit from price-insensitive early buyers, then lowers the price over time, with the drawbacks of attracting rivals and pricing some buyers out.

    Key words

    Say what each word means before you turn the card.

    Price skimming

    Try answering aloud or in your head before turning the card.

    Penetration pricing

    Try answering aloud or in your head before turning the card.

    See every definition
    Price skimming
    Charging a high launch price that is reduced over the product's life cycle.
    Penetration pricing
    A contrasting approach that starts low to win market share quickly.

    Label the diagram

    Some boxes have lost their names. Pick the right name for each number.

    The diagram again, with 3 boxes numbered instead of named. A top-down flowchart. It begins with a node labelled Product launch, which leads to High initial price. From High initial price, one arrow leads to Early buyers relatively price-insensitive, which leads to High revenue per unit, which leads to Recovers development costs quickly. A second arrow from High initial price leads to Price lowered over time, which leads to Later price cuts. A third arrow from High initial price leads to High margins attract rivals, and a fourth arrow from High initial price leads to Some buyers priced out early.

    • 1Box 1

    • 2Box 2

    • 3Box 3

    0 of 3 labelled

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