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
Understanding price skimming
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Answer
Price skimming is a pricing strategy where a company sets a high initial price for a product to maximize profits from segments willing to pay more. The aim is to attract customers who perceive higher prices as indicating better quality or exclusivity.
Step 2
Contextualized example of Pfizer
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Answer
Pfizer, being a leading player in the healthcare market, sells healthcare products that may include high-cost innovative treatments. By adopting a price skimming strategy, Pfizer can attract early adopters of these new products who are inclined to pay a premium for novel treatments.
Step 3
Reasons for adopting price skimming
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Answer
Using a price skimming strategy, Pfizer can recover its large research and development costs more quickly. The initial high prices can help ensure profitability as the firm establishes itself in new markets with innovative offerings.
