Explain why a business would choose a price skimming strategy? (6)

Price skimming is when a business charges a high price when the product is initially launched and lowers the price over time, a business with a strong brand such as Apple is able to do this, thus profit is maximised over the product life cycle. In order for this strategy to be successful there needs to be a high initial demand for the product. As with Apple as they have a strong brand and are able to create demand for their products using their launch events that mean once the product comes into the market consumers are willing to pay a high price for the product, be it an iPhone, MacBook or Apple Watch.A business may also use a price skimming strategy if they are selling a product with a high rate of depreciation or a speciality product such as a brand new car, car manufacturers and dealers will sell cars when they are new for the highest price they will get over their useful life. Price penetration wouldn't work for cars as cars have a short product lifecycle as car companies will either update the car a few years after launch or scrap the model. Price skimming means profit can be maximised over a short product lifecycle whilst price penetration is better for products with a longer product life cycle as market share increases over time and prices increase allowing profits to maximise over the longer period. Therefore businesses opt for a price skimming strategy either if they have a strong brand and are able to charge a high price initially or if the product life cycle is short for that particular product a high price has to be charged from the very beginning.