Explain how Pfizer could benefit from using a price skimming strategy.
- Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Explain how Pfizer could benefit from using a price skimming strategy.
Worked Solution & Example Answer:Explain how Pfizer could benefit from using a price skimming strategy.
- Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
What is price skimming?
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Answer
Price skimming is a pricing strategy where a company sets a high price for a new product initially, then gradually lowers the price over time. This approach aims to maximize profits from customers who are willing to pay a premium for being the first to acquire the new product.
Step 2
Application to Pfizer's situation
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Answer
Pfizer, as a seller of healthcare products, can employ price skimming for new treatments or cosmetic products. This strategy will allow Pfizer to set higher prices at the product launch, targeting customers eager for new healthcare solutions.
Step 3
Analysis of price skimming benefits
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Answer
By implementing a price skimming strategy, Pfizer can recover its high research and development (R&D) costs quickly. The initial high prices will help the company generate significant revenue from those willing to pay more, ensuring profitability before gradually attracting price-sensitive customers.
