ACCA Applied Skills · Performance Management · Pricing decisions
A company is launching a technologically advanced product with no close substitutes. Early adopters are prepared to pay a premium, and the company wants to recover its development costs quickly. Which pricing strategy is most appropriate?
Market skimming is most appropriate. A novel product with no close substitutes and willing early adopters allows a high initial price, which recovers development costs quickly. The price is then lowered over time to reach more price-sensitive customers.
- AMarket skimming, with a high initial price that is reduced over timeCorrect
- BMarket penetration, with a low initial price to build market share
- CCost-plus pricing using a fixed mark-up on the lowest possible cost
- DGoing-rate pricing set equal to competitors' prices
Explanation
Skimming suits a novel product with inelastic early demand and high development costs, because high initial prices recover costs quickly from early adopters. Penetration pricing would sacrifice early revenue and suits price-sensitive markets. No close substitutes means there is no going rate to follow.
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