In price skimming, a product's price, gross margin, units sold, and projected revenue are tracked across four phases.
1. Introduction Phase: The product is introduced at a high price to recover development costs and target early adopters who are willing to pay a premium. Gross margin and projected revenue are high, but units sold are low due to the high price.
2. Growth Phase: As the product gains popularity, the price is gradually reduced to attract a larger customer base. Units sold increase, leading to an increase in projected revenue, while the gross margin begins to decrease.
3. Maturity Phase: The product reaches its peak popularity and the price is further reduced to compete with other products. Units sold are at their highest, but the gross margin and projected revenue begin to decline.
4. Decline Phase: The product becomes obsolete and the price is significantly reduced to clear inventory. Units sold, gross margin, and projected revenue all decrease.
Need to improve your product pricing to maximize your profit margin? This Pricing Strategies Toolbox...
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