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Advantages And Disadvantages Of Creaming

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Creaming or skimming[edit]
In most skimming, goods are higher priced so that fewer sales are needed to break even. Selling a product at a high price, sacrificing high sales to gain a high profit is therefore "skimming" the market. Skimming is usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are firstly dismarket at a high price. This strategy is often used to target "early adopters" of a product or service. Early adopters generally have a relatively lower price-sensitivity - this can be attributed to: their need for the product outweighing their need to economise; a greater understanding of the product's value; or simply …show more content…

First-degree price discrimination

- The business charges every consumer exactly how much they are willing to pay for the product.

2. Second-degree price discrimination

- The business uses volume discounts which allows buyers to purchase a higher inventory at a reduced price. While this benefits the high-inventory buyer, it obviously hurts the low-inventory buyer who is forced to pay a higher price. This buyer may then be less competitive in the downstream market.

3. Third-degree price discrimination

- This occurs when firms segment the market into high demand and low demand groups.[16]

Firm need to ensure they are aware of several factors of their business before proceeding with the strategy of price discrimination. Firms must have control over the changes they make regarding the price of their product by which they can gain profitability depending on the amount of sales made. The price can be increased or decreased at any point depending on the fluctuation of the rate of buyers and consumers. Price discrimination strategy is not feasible for all firms as there are many consequences that the firms may face due to the action. For example: if a firm sells a product to their customer for a cheaper price and that customer resells the product demanding a higher price from another buyer then the chances of the firm failing to make a higher profit is predicted because they could have sold their product at a higher rate than the re-seller and made further

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