Luxora recently launched a premium smartwatch in the market after extensive research and innovation. The smartwatch offers several unique health and connectivity features that set it apart from existing products. To recover its high research and production costs, the company decided to set a high initial price. Despite the high price, demand remained strong as quality-conscious customers were willing to pay more for the product superior features and value. a) Identify and explain the pricing strategy used by Luxora. b) Explain any two advantages of this pricing strategy.

Question

Accepted Answer

The pricing strategy used by Luxora is **Skimming pricing** (also called Creaming). This strategy involves selling a product at a high price initially so that fewer sales are needed to break even. Luxora set a high initial price to recover its high research and production costs, targeting quality-conscious customers who were willing to pay more for the product's superior features. This strategy is commonly employed to reimburse the cost of investment in original research and targets early adopters with relatively lower price sensitivity.

**Two advantages of skimming pricing:**

1. Price skimming helps the company in recovering the research and development costs which are associated with the development of a new product.
2. If the company caters to consumers who are quality conscious rather than price conscious, then this strategy can work in a great way for the company.