The manufacturer of a new kind of fat-free ice cream that has the consistency and taste of regular ice cream is thinking of using a skimming pricing strategy for its new product.Which of the following conditions would argue AGAINST using a skimming pricing strategy for the tasty fat-free ice cream?
A)The ice cream market is highly conservative.
B)A large portion of the market has inelastic demand for ice cream - over a fairly broad range of prices.
C)Economies of scale in production are substantial.
D)Retailers are willing to pay for new brands of premium ice cream in an overcrowded category.

Question

Quizplus · Accepted Answer

Skimming pricing strategy involves setting high prices initially and gradually lowering them over time. This strategy works best when the market is relatively small and there is low competition, such that customers are willing to pay a premium price for a new and unique product. If a large portion of the market has inelastic demand for ice cream, meaning they are not sensitive to changes in price, then a skimming pricing strategy may not be necessary or effective. These customers may still be willing to purchase the fat-free ice cream even at a lower price point, so the manufacturer may want to start with a lower price point instead of a high skim price.

The Manufacturer of a New Kind of Fat-Free Ice Cream