Which term refers to a strategy that may maximize profits by charging a premium price initially?

Skimming is a pricing strategy that involves setting a high initial price for a new or innovative product to maximize profits from customers who are willing to pay more at the outset. This approach targets early adopters and those more price-inelastic consumers who perceive added value in being the first to have the product. Over time, as competitors enter the market or demand from the initial customer base slows, the company may lower the price to attract a broader customer base.

This strategy is effective in recovering research and development costs quickly, and it can enhance the perceived value of the product by creating a sense of exclusivity. In contrast, other pricing strategies have different objectives; for example, penetration pricing aims to gain market share quickly by setting a low initial price, while dynamic pricing involves fluctuating prices based on market demand and value-based pricing focuses on setting price based on perceived value rather than solely on production costs or market conditions.