Question

A manufacturer of a portable digital HD camera is considering a skimming pricing strategy for its newproduct. Which of the following conditions would argue againstusing a skimming pricing strategy forthe camera?There will be a large potential market, even if the product is sold at a high price.Technological problems still exist for competitors; their products are not equivalent.Increasing the volume sold reduces production costs substantially.Consumers perceive a strong price-quality relationship for this product.Many consumers in the target market are innovators

Answer 1

Answer:

Option C. Increasing volume substantially reduces production costs.

Explanation:

Skimming pricing is the strategy to charge the customer relatively high price because the product is innovative.

Option A is incorrect argument against skimming strategy because the argument would be in favor if there large potential customers in the market whom the company can charge higher prices.

Option B is also incorrect argument against skimming strategy because the high initial price of the product will not attract competitors because the product is in its growth phase.

Option C is correct argument against skimming strategy because selling at a lower price will enable the company to sell higher number of products which will enable the company to gain economies of scale which would reduce the production costs substantially.

Option D is incorrect argument because customers interpret the high price as signifying high quality which is again in the favor of the company's skimming strategy.

Answer 2

Answer:

Increasing the volume sold reduces production costs substantially.

Explanation:

A price skimming strategy focuses on charging the highest possible price to the first customers that are willing to purchase their product or service. Price skimming is generally carried out during the introduction state of a new product, where the quantity demanded is not that high. Then as the demand increases and more competitors enter the market, the price will start to decrease in order to appeal to a broader market.