Start your business
Start your business
Run your business
Run your business
Grow your business
Grow your business
Accountants and Bookkeepers
Accountants and Bookkeepers
- Accountants and Bookkeepers
  Learn how accountants and bookkeepers can be productive in these articles & guides
- Learning and Development
  A range of informative content to enhance your QuickBooks experience.
Updates
Updates
- Product Updates
  Watch this space for monthly product updates.
- Intuit News
  Latest news, articles & guides

Need help choosing a plan?

1800 917 771 Schedule a call

Schedule call

Running a business

What is price skimming and how can you use it?

By Kat Boogaard

Published on August 5, 20247 min read

Think that a lower price automatically equates to more sales? Not always.

Price skimming is a pricing strategy that involves launching at a high price and reducing the price over time. This high initial price allows businesses to maximize profit upfront and then continue to capture sales as pricing decreases.

Wondering if a price skimming strategy is the right choice for your business? We’re answering all of your questions about price skimming here, including its advantages, pitfalls and use cases.

What is price skimming?

When you use price skimming, you start with a high initial price for a new product and then decrease its price over time.

It’s effective at capturing numerous different customer segments. Your highest initial price will attract early adopters and brand loyalists who are eager to get their hands on something when it launches.

As the price drops, you’ll continue to appeal to more and more price-sensitive customers. That’s where the term “price skimming” comes from: you’re continuing to skim different market segments off the top as you keep reducing the price of the product. You’ll also hear this referred to as price discrimination.

A variety of different businesses and industries use this pricing strategy, but it’s especially common in:

Technology: Apple is perhaps one of the notorious examples of price skimming. It’s a strategy they’ve used with everything from iPhones to iPods. The iPod classic was priced at $399 in 2002 and was decreased to $299 about one year later. Other technology companies like Samsung and Google have also used this strategy. They capture a small number of innovators and early adopters upfront, hit their sales peak at mid-market and then drop off again when the price is lowered further.
Retail and e-commerce: Retailers or e-commerce companies often start with a high initial price but then roll out sales and other steep discounts to appeal to their price-sensitive segment of customers. Handbag retailer Kate Spade has an entire sale section on their website where they display the original price of the product and its new lower price.
Software as a service (SaaS): Software companies have been known to use price skimming as well. Salesforce is a customer relationship management (CRM) platform that started with a high price point for enterprise-level customers. They later rolled out more affordable options for smaller businesses.

Note that price skimming is the opposite of penetration pricing, where you start with a low price to penetrate the market and pull customers away from the competition. Penetration pricing is used frequently by service providers and some product-based businesses as well.

What are the benefits of price skimming?

If you’re going to eventually reduce the price anyway, why not launch at that lower price tag? Well, because price skimming offers several different advantages.

1. Quick return on investment

Particularly in industries with high product development or research and development costs, companies often need to recover that investment quickly.

Starting with a higher price point allows them to recoup those costs from an eager customer base before the market becomes saturated. They can then reinvest that money into developing future products that can increase their market share. Google Home launched at a price point of $129 in 2016. Now, it’s available for $99—with even cheaper alternatives available.

Additionally, price skimming is beneficial when there’s a lack of competition at product launch. Customers can’t get cheaper alternatives, and those who are particularly interested in your product will pay a higher price.

This is where companies reap the benefits of price skimming. They get higher profit margins from their highest-paying customers because their competitors haven’t caught up yet.

2. Perception of quality and exclusivity

While it happens subconsciously, many of us operate with the assumption that a product or service is better because it’s more expensive.

That perception may or may not be accurate, but it’s a massive piece of the price skimming puzzle—especially when it comes to early adopters. They generate natural interest in products, build hype and instil a sense of urgency in other customers.

There are plenty of examples of how this has played out with real products. Samsung’s pre-sale of the Note 8 saw 650,000 orders in 40 countries. Customers lined up around Tesla showrooms to purchase the Model 3, despite the fact they didn’t even know what the car looked like.

These customers have less price sensitivity but want to be among the first to get their hands on a new, innovative product. They generate enthusiasm and become a source of recurring revenue as they spread the word about the product.

3. Flexible product pricing

Finally, price skimming also provides room to change pricing as the market shifts. Businesses often need to tweak their prices depending on market conditions, competition, customer feedback and more.

With price skimming, companies start at a higher price point to capture as much revenue as possible before tailoring prices to fit the current circumstances.

This strategy gives companies a chance to determine how price sensitive their customers are and adjust their product pricing accordingly. They test the market without leaving money on the table.

What are the potential drawbacks of price skimming?

Like any other pricing strategy, price skimming isn’t without its pitfalls. Here are a few disadvantages to be aware of.

1. Low initial sales

Brand loyalists often know and accept that price skimming happens and are willing to overlook it to be first in line to get a product.

However, non-loyalists don’t experience that same push to purchase immediately and will wait to see if the price goes down.

If a business doesn’t have an existing strong brand with high customer engagement, price skimming can lead to low initial sales because there aren’t enough people willing to stomach the high initial price.

2. Customer mistrust and frustration

Price skimming can also feel manipulative and dishonest to customers, as they can become angry if the price they paid for a product at launch continues to drop.

Is the product worth as much as a company is asking if they’re willing to reduce the price shortly after? Are they just trying to charge a huge markup to their most loyal customers?

When price skimming is applied, businesses risk losing trust and increasing customer churn. They can lose their brand loyalists and struggle to launch future products successfully as a result.

When should you use price skimming?

The opportunity to charge a high price at first is appealing, but at the same time, the risks are intimidating. How can you know if price skimming is the right pricing strategy for your business?

There isn’t a tried and true formula. However, price skimming is generally most effective if you meet the following criteria:

Your brand or company already holds a significant portion of the market share. You’ll have an easier time making sales and gaining traction, despite the big-ticket price.
You have an innovative new product with very little competition. You might have industry competition, but not necessarily competition for your specific product. This means customers are willing to pay a higher price for a product they can’t get elsewhere.
Your product is considered to be a luxury. This pricing strategy isn’t nearly as effective on low-price products. Price skimming works best for high-price products with high profit margins.

If you tick at least one of those boxes, then a price skimming strategy is worth considering.

When using price skimming doesn’t make sense

Again, figuring out your pricing isn’t black and white, but there are a few circumstances when price skimming isn’t best for your company or product, including:

You have many competitors at similar price points. Your competitors are ready and waiting to undercut your high price with a penetration pricing strategy of their own.
Your brand has little buzz. As many of the examples demonstrated, word-of-mouth marketing is critical for generating enthusiasm and building brand loyalists. If you’re new in your industry and don’t have an established customer base, it’s going to be tough to gain enough traction to warrant the high initial price point.
Your product isn’t appealing to the high end of the market. For price skimming to be effective, you need a user base or customer segment that’s excited about your product—despite the price. Google Glass is a classic example of failure in this area. Even early adopters weren’t intrigued, and the product flopped at a $1,500 price point.

Is price skimming right for your business?

Price skimming works in many different industries, but that doesn’t make it the right default pricing strategy for every company.

Ultimately, you need to carefully consider your brand, customers and competitors to see if launching at a high initial price would benefit your business.

Running a business

The 50 best small business apps organized by what you want to accomplish

February 11, 2020

A person in a white shirt and apron smiles.

Starting a business

Self-employed: how to successfully build your business

June 6, 2024

Running a business

Cost of goods sold: How to calculate and record COGS

June 26, 2024

Looking for something else?

Get QuickBooks

Smart features made for your business. We've got you covered.

See how it works

Help Me Choose

Use our product selector to find the best accounting plan for you.

Choose your product

QuickBooks Support

Get help with QuickBooks. Find articles, video tutorials, and more.

Start learning

A computer screen showing a picture of a computer.

TAKE A NO-COMMITMENT TEST DRIVE

Your free 30-day trial awaits

Our customers save an average of 9 hours per week with QuickBooks invoicing*

No credit card needed

Cancel anytime

Unlimited support

By entering your email, you are agree to our Terms and acknowledge our Privacy Statement.

- - QuickBooks reserves the right to change pricing, features, support and service at any time. Prices are in AUD and include GST. See our Terms of Service for further information.
  - Pricing: All prices are in AUD and include GST.
  - ProAdvisor Program: Please find the terms of our ProAdvisor program here.
  - 50% off for 3 months: For new subscribers, enjoy a 50% off price subscription on QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 3 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 50% off for 12 months: For new subscribers, enjoy a 50% discount off the current monthly retail price for QuickBooks Self-Employed, QuickBooks Online Simple Start, QuickBooks Online Essentials or QuickBooks Online Plus for the first 12 months of your subscription (Offer). The discount will applied from the date of your enrolment and will continue for 12 months. From month 13, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - 50% off for 3 months (existing subscribers): For existing QuickBooks subscribers who upgrade to QuickBooks Online Essentials, Plus or Advanced, enjoy a 50% discount off the current monthly retail price for 3 months of your subscription (Offer). The discount will be applied from the date you upgrade in-product and will continue for 3 months. From month 4, you will be charged the then current monthly retail price for your subscription. See current prices here. QuickBooks Payroll and QuickBooks Time services and prices are not eligible for any discount and will be invoiced separately according to your usage on a monthly basis during your subscription. Intuit reserves the right to request information to verify the eligibility of a purchaser of the Offer. Acceptance of such verification information is at the reasonable discretion of Intuit, which may revoke the Offer and impose a monthly cost for the subscription at the then current retail prices, at any time if it considers the purchaser is ineligible for the Offer.
  - Free Trial: First thirty (30) days of subscription to QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll (including QuickBooks Advanced Payroll), starting from the date of enrolment, is free. During the free trial, you may pay any number of employees using QuickBooks Payroll free of charge. To continue using QuickBooks after your 30-day trial, you'll be asked to present a valid credit card for authorisation and you'll be charged monthly at the then-current fee for the service(s) you've selected.
  - QuickBooks Payroll powered by Employment Hero: Payroll services are offered by a third party, Employment Hero. QuickBooks Payroll is only accessible via QuickBooks Online subscriptions. You will be charged $6.00 (incl. GST) per month for each ‘active employee’ paid using QuickBooks Payroll. An ‘active employee’ is one who has been paid at least once in the billing month. For Advanced Payroll, there is an additional monthly subscription fee of $10 (incl GST). Pricing, terms and conditions, including service options, are subject to change.
  * Employment Hero was voted the leading payroll solution for SMBs <50 employees (Australian Payroll Association 2021 Payroll Benchmarking Study)
  - Customer support: Call or chat to an expert for QuickBooks Online Accountant, QuickBooks Simple Start, Essential, Plus, and Advanced or use in-product QB Assistant and chat for QuickBooks Self-Employed. You'll also find useful resources in the QuickBooks Community.
  - Compatible Devices: QuickBooks Online, QuickBooks Self-Employed and QuickBooks Payroll require a computer with Internet Explorer 10, Firefox, Chrome, or Safari 6 and an Internet connection (a high-speed connection is recommended). The QuickBooks Online mobile app works with iPhone, iPad, and Android phones and tablets. QuickBooks Online and QuickBooks Payroll are accessible on mobile browsers on iOS, Android, and Blackberry mobile devices. Devices sold separately; data plan required. QuickBooks Payroll cannot be used on the mobile apps. Not all features are available on the mobile apps and mobile browser. QuickBooks Online mobile access is included with your QuickBooks Online subscription at no additional cost. Data access is subject to cellular/internet provider network availability and occasional downtime due to system and server maintenance and events beyond your control. Product registration required.
  - Get paid faster: Get paid 2.5x faster invoicing with PayPal
  * PayPal and QuickBooks customers get paid on average in less than 5 days, which is over 7 days faster than the average for invoices that get paid with other payment methods. Data is for paid invoices that were created in QuickBooks in Australia between 23.05.22 and 23.11.22
  - Tax deductions: Tax deductions not guaranteed due to being subject to user data entry errors. Mileage calculation provided by the Australia Taxation Office - 85 cents per kilometre for the 2023-2024 income year. To a maximum of 5,000 business kilometres per car (Deductions are only applicable to cars)
  - Customer Service Awards: Excellence in Customer Service Award at the CX Australia Awards 2022
  - Multiple file discount: Multiple file discount applies to QuickBooks Australia customers only and valid when signing up for more than one QuickBooks Online subscription in one order. Further terms and conditions available here. Not applicable to QuickBooks Self Employed.
  - Reviews: GetApp, Capterra, Google Play Store, Apple App Store reviews as at date 08/01/24.
  - Cost per day claim (annual): Based on a QuickBooks Simple Start plan at its regular retail price of $313 per year and a 365 day year.
  - Annual Billing: You may pay for your QuickBooks Online subscription on an annual, upfront basis to enjoy a discount on the current fees. If you use QuickBooks Payroll powered by Employment Hero, your payroll costs will still be charged monthly to your nominated payment method in accordance with your usage as set out here. If you cancel your QuickBooks Online subscription within the pre-paid 12 month period, you will not be eligible for a refund, but will retain full access to your QuickBooks Online subscription for the remainder of the 12-month period. Unless cancelled by you prior, your annual subscription will auto-renew on the 12 month anniversary of your sign-up date using the billing details you have given us. Discounts, prices, terms and conditions are subject to change.
  - Over 7 million customers: Based on number of global QB customers (ecosystem) (7.1m) worldwide as of October 2022.
  - Free Onboarding: Applicable to Buy Now subscriptions on QuickBooks Simple Start, Essentials and Plus plans. Not available for QuickBooks Self-Employed.
  - Save Hours: Save up to an average of 29 hours per month with QuickBooks.
  - * Based on a survey conducted by Intuit Australia Pty Ltd in September 2022. Time saving is in comparison to previous accounting method, based on 184 responses from customers that saw time savings.
  - Get access to QuickBooks Tax: ***Access QuickBooks Tax, powered by LodgeiT, by becoming a member of the QuickBooks ProAdvisor Program (it’s free to join). Find out more about the ProAdvisor Program here, including the terms of the QuickBooks Tax offer in the Program here.
  - QuickBooks Time Disclaimers & Offers for Australia: For Important pricing offers and disclaimers with further information, please see here.
  - *Full terms and conditions for access to QuickBooks Tax, powered by LodgeiT as part of the the Proadvisor Program can be found here. QuickBooks reserves the right to change pricing, features, support and service at any time.
  - **Intuit conducted a study involving 56 interviews with accountants and bookkeepers who used Books Review for BAS preparation between March to December 2021 and found that when using Books Review, participants reduced the time spent preparing their clients BAS Reports by around 40%.
  - Our Terms of Service apply to all QuickBooks Online subscriptions. Please review them carefully.

Intuit helps put more money in consumers’ and small businesses’ pockets, saving them time by eliminating work, and ensuring they have confidence in every financial decision they make.

What is price skimming and how can you use it?

What is price skimming?

What are the benefits of price skimming?

1. Quick return on investment

2. Perception of quality and exclusivity

3. Flexible product pricing

What are the potential drawbacks of price skimming?

1. Low initial sales

2. Customer mistrust and frustration

When should you use price skimming?

When using price skimming doesn’t make sense

Is price skimming right for your business?

Related Articles

Looking for something else?

Get QuickBooks

Help Me Choose

QuickBooks Support

Your free 30-day trial awaits