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What is the most likely reason that a business would use price skimming? (A) To encourage export sales (B) To achieve market share quickly (C) To gain high profits when demand is strong (D) To reverse the decline stage of the product life cycle - HSC - SSCE Business Studies - Question 9 - 2013 - Paper 1
Question 9
What is the most likely reason that a business would use price skimming? (A) To encourage export sales (B) To achieve market share quickly (C) To gain high profits w... show full transcript
Worked Solution & Example Answer:What is the most likely reason that a business would use price skimming? (A) To encourage export sales (B) To achieve market share quickly (C) To gain high profits when demand is strong (D) To reverse the decline stage of the product life cycle - HSC - SSCE Business Studies - Question 9 - 2013 - Paper 1
Step 1
To gain high profits when demand is strong
Answer
Price skimming is a pricing strategy where a business sets a high price for a new or innovative product to maximize profits from segments willing to pay a premium price. This strategy is particularly effective when demand is strong, allowing the business to recover its investment costs quickly. Once the initial high-price segment is captured, the company may lower prices to attract the more price-sensitive customers later on. Therefore, the most likely reason a business would use price skimming is to gain high profits when demand is strong.