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 price for a new product when it is first launched. This strategy aims to maximize profits from the segment of consumers willing to pay more for being early adopters.
Step 2
Contextual example - Pfizer's healthcare products
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Answer
Pfizer is involved in selling healthcare products, where the launch of a new drug can leverage price skimming. Patients and healthcare providers may be prepared to pay higher prices for new treatments that provide significant health benefits.
Step 3
Recovering R&D costs
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Answer
By employing a price skimming strategy, Pfizer can recover the high research and development costs associated with creating new pharmaceutical products. The initial higher prices allow for a quicker return on investment before competitors enter the market.
