Lush Cosmetics Corp., a U.S.-based firm, has recently started exporting cosmetics to India. Lush has introduced a new range of mineral-based makeup products for the first time in the Indian market. As Lush has no competitors in this segment of the Indian cosmetics market, it has set a very high price for its products in order to reach the premium, price insensitive segment of the market. This is an example of _____.

Question

Quizplus · Accepted Answer

A company uses skimming when the objective is to reach a segment of the market that is relatively price insensitive and thus willing to pay a premium price for the value received. When a company is the only seller of a new or innovative product, a skimming price may be used to maximize profits until competition forces a lower price. As this is the case with Lush in the given scenario, it has used price skimming to increase its revenue.