According to Köehler (1996), the skimming price strategy is a high price strategy which provides a healthy margin but risks a depressed sales volume. Since high prices also attract piracy, protection costs against piracy basically eat up margins. In the case of Apple, the buyers are not attracted by pirated versions of products because of the image of the brand linked to the snobbism of the “members of the Apple family”. In the graph below, we compared iPod sales with the price of iPod classic from 2002 to 2006. According to the data, the iPod classic model seemed to have either reduced its price or maintained the same price from one year to the next. In 2002, iPod classic price was the highest; as a result, it was also shown as the year with the lowest sales. For example, the Apple iPod classic costs over the years include: 399$ (2002), 299$ (2003), 299$ (2004) and 249$ (2005).
Foremost, while issuing new generation model of a classic iPod, the company was still selling the previous version at the reduced price.
To gain market share, a seller cannot solemnly rely on skimming strategies but must also use other pricing tactics such as pricing discrimination, which has been the case of Apple.
Pricing discrimination is a pricing strategy that charges customers difference prices for the same product or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. Most often the seller places customers in groups based on certain attributes and charges each groups a different price. price discrimination is only feasible under certain conditions: 1) companies have short run market power;
2) consumers can be segmented either directly or indirectly, 3) arbitrage across differently priced goods is infeasible (Stole, 2003). Given the fact that these conditions are fulfilled, companies typically have an incentive to practice price...