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Explain how Pfizer could benefit from using a price skimming strategy. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Explain how Pfizer could benefit from using a price skimming strategy.
Worked Solution & Example Answer:Explain how Pfizer could benefit from using a price skimming strategy. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Understanding price skimming
Answer
Price skimming is a pricing strategy where a company sets a high price at the launch of a new product, targeting customers who are willing to pay a premium for being among the first to purchase. This approach allows the company to recover development costs quickly and maximize profits initially.
Step 2
Application: Pfizer's context
Answer
Pfizer sells healthcare products, including new treatments that can be highly innovative and effective. By implementing a price skimming strategy, Pfizer can attract customers who are willing to pay higher prices for new therapeutic options, especially if they have unique benefits in a competitive marketplace.
Step 3
Analysis: Consequences of price skimming
Answer
Utilizing price skimming will enable Pfizer to recover its relatively high research and development (R&D) costs more swiftly. This initial high pricing can lead to significant early profits, which may also help subsidize the costs of future innovations and expand the company's market share in the healthcare industry.