Future Business Leaders of America (FBLA) Advertising Practice test

What pricing strategy involves setting a high price initially to reflect a product's uniqueness and recover development costs quickly?

1. penetration pricing

2. price skimming

3. price manipulation

4. price gauging

The correct answer is: price skimming

The chosen strategy, price skimming, involves setting a high price at the introduction of a product to capitalize on its uniqueness or innovative features. This approach allows companies to recover their research and development costs quickly, as consumers who are eager to purchase the new product are often willing to pay a premium. As the market begins to saturate or competition increases, the company may lower the price to attract more price-sensitive customers, further expanding its market reach. This strategy is particularly effective in markets for new technology or high-end products, where early adopters are less price-sensitive and more interested in having the latest offerings. By initially setting the price high, businesses can maximize revenue from those customers before eventually lowering the price to compete with other options in the market. Other options involve different approaches: penetration pricing focuses on setting a low initial price to gain market share quickly, price manipulation implies unethical practices to influence pricing unfairly, and price gauging refers to raising prices excessively during emergencies or high demand situations. Each of these approaches serves different market goals and contexts compared to price skimming.