A skimming pricing strategy is most likely to succeed under which of the following conditions?

• A. When the market is highly competitive with many similar products
• B. When the product is a basic commodity with little differentiation
• C. When consumers have a high willingness to pay and the product is perceived as unique or innovative
• D. When consumers are highly price sensitive and demand is elastic

Answer: (C)

Verified step by step guidance

1. Understand the concept of skimming pricing strategy: it involves setting a high initial price for a new or innovative product to maximize profits from consumers willing to pay more before gradually lowering the price to attract more price-sensitive customers.
2. Analyze the market conditions where skimming pricing is effective: it works best when the product is unique or innovative, and consumers perceive high value in it, leading to a high willingness to pay.
3. Consider the role of competition: in highly competitive markets with many similar products, skimming is less effective because consumers can easily switch to alternatives.
4. Evaluate consumer price sensitivity: if consumers are highly price sensitive and demand is elastic, a high initial price will reduce quantity demanded significantly, making skimming less successful.
5. Conclude that skimming pricing strategy is most likely to succeed when consumers have a high willingness to pay and the product is perceived as unique or innovative, as this allows the firm to capture maximum surplus from early adopters.