What is price skimming?

Price skimming is launching at a deliberately high price to capture the customers who want the product most, then lowering it in stages to reach each successively more price-sensitive layer of the market. Consumer electronics is the textbook case: flagship pricing at launch, discounts as the next model nears.

Skimming works when early demand is strong and competitors can’t undercut you quickly — which makes it fragile in software, where a fast follower can arrive at half the price within months. Its opposite is penetration pricing; watching which of the two a new entrant chooses tells you a lot about how they intend to compete.