In a business context, what does market skimming involve?

Market skimming involves setting a high initial price for a new product to maximize revenue from early adopters who are willing to pay a premium. This strategy is particularly effective for innovative or unique products that have little to no competition at launch. By starting with a high price, businesses can recover development costs quickly and take advantage of the segment of the market that values the product highly.

Once the initial demand from this segment starts to decline, the business may then lower the price to attract other customers. This strategy not only helps in maximizing short-term profits but can also create a perception of quality and exclusivity around the product.

The other options describe different pricing strategies that are not aligned with the concept of market skimming. For example, setting low prices to attract customers is indicative of penetration pricing, while offering discounts on bulk purchases is a tactic aimed at increasing sales volume rather than initially maximizing revenue. Increasing prices to cover operational costs doesn’t align with the strategic pricing approach inherent in market skimming, which focuses on price setting based on consumer demand rather than cost factors.