Question

Under which pricing strategy higher initial prices are fixed?

Hint:

Think of Apple’s iPhone launches: they start at a high premium price for the "early adopters," and as the months go by or new models arrive, the price of the previous model is lowered to reach a broader audience.

Answer 1

Step 1: Identifying the Strategy.
Higher initial prices are fixed under the Price Skimming strategy. This approach involves setting a high price for a new, innovative, or highly desirable product when it is first launched in the market. 

Step 2: Objective of Price Skimming. 
The primary goal of this strategy is to ""skim the cream"" off the market by targeting early adopters and consumers who are less price-sensitive and willing to pay a premium to own the latest product. This allows the firm to recover its research and development (R&D) and promotional costs quickly. 

Step 3: Market Transition. 
As the initial demand from the high-end segment is satisfied and competitors begin to enter the market with similar products, the firm gradually lowers the price. This ""sliding down the demand curve"" makes the product accessible to more price-sensitive segments of the population.