DECA+ Business Management and Administration Practice Exam

Which pricing strategy involves setting prices higher than competitors?

1. Skimming

2. Bundling

3. Transfer Payments

4. Flighting Strategy

The correct answer is: Skimming

The skimming pricing strategy involves setting prices higher than competitors, particularly when a product is newly launched or unique. This strategy is used to maximize profits from segments of the market that are willing to pay a premium for a new product, often due to its innovative features or perceived exclusivity. By initially setting prices high, a company can capture high margins from early adopters before gradually lowering the prices to attract more price-sensitive customers. In this context, skimming serves multiple purposes: it helps recover development costs associated with new products quickly, positions the product as a luxury or high-value offering, and creates a perception of higher quality compared to lower-priced alternatives. This strategic pricing can also generate a favorable return on investment during the early phase of a product's lifecycle.