Skimming strategy, i.e. collecting cream. What is this?

Marketing strategy
What is a skimming strategy?

The most common objection to marketers is that they sell a product cheaply, only to increase its price later as customers get used to it or become indispensable to them. The skimming strategy is exactly the opposite. It might seem unintuitive from a marketing point of view. And yet it works! 

Anyone who grew up in the countryside knows that when you put the milk aside, cream will build up on top. It is the best-tasting and most valuable part of the milk. The top layer is "creme de la creme". Hence the origin of numerous terms, such as sour cream and "drinking cream". And it is precisely this last concept that the skimming strategy, i.e. collecting cream, applies to. What does this mean in the business reality? 

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What is the skimming strategy? 

The skimming strategy is to launch a product at an inflated price while the competition is still little or no competition. The producer can watch the sales bars. When it sees the demand begin to decline, the skimming strategy enters the second phase: the price is gradually lowered. More customers are coming again. Finally, those for whom price is the decisive factor in their purchases join. Such action allows you to quickly make up for previously incurred large expenditure, e.g. on development and research on a new product. The skimming strategy works well for basic, luxury and mid-range goods. 

When is it worth using the skimming strategy? 

A skimming strategy allows you to maximize your profit when the demand for the item is at its highest. This usually happens when the product is just released on the market. Out of curiosity or out of real need, customers will buy it even at a higher price. Often this is followed by the interest of the competition, which releases similar things to this market, encouraged by the high margin. At this point, however, the price of the original product goes down. 

Whoever enters the market first has the advantage of being the "original" producer who sells "real", "top quality" goods. All this works well, for example,  

  • after freeing the market from restrictions (e.g. CBD products),  
  • when introducing a new product to the market (e.g. e-cigarettes), 
  • when introducing new features and gadgets (monitors OLED, bent screen, more pixels). 
  • when entering a new market (e.g. Korean masks in Poland).  

Sometimes a product is a response to new needs, other times it only creates a fashion or demand. It happens that the "first product" has functions and possibilities that competitors did not have before. This is often the case with electronics. Over time, you may find that this feature is not very important. However, the skimming strategy allows you to reach the most engaged users who want to pay extra to have something in front of others. All you need to do is find such a market opportunity and seize the opportunity to then… drink the cream of success. 

Skimming strategy on the example of the 90s in Poland 

In Poland in the 90s, there were perfect conditions to observe what a skimming strategy is. Everyone who lived then remembers the extremely high prices of some "Western" goods.  

Concrete examples:  

  • In the first Polish Benetton store, the sweatshirt cost even PLN 300-400. Today, despite the much higher costs than before - it is only PLN 100-200. 
  • Similarly, dizzying prices were achieved by foreign skateboards, toys and electronics.  
  • Whiskey, which you can buy today in any local store for 40-60 zlotys, then cost 150-300 zlotys per bottle.  

The case of the first wines imported to Poland was different - these were expensive, because the import scale was small, and these wines have specific transport and storage requirements. In the examples above, the costs were not significantly higher than today. A skimming strategy has just been used. The first company on the young market (Benetton, whiskey or toy manufacturer) has no competition. At the same time, the demand for these products is not high, mainly among the most conscious and then few middle and upper classes. Those who are able to pay PLN 200 for a sweatshirt just because it has the logo of a brand that is little known in Poland, can also pay PLN 300 and PLN 400 for it. These types of almost luxurious goods are now at your fingertips - the prices have dropped. 

Problems with the skimming strategy 

The internet is a major problem with this strategy. It is very difficult to keep the price artificially high today. Customers even travel abroad to bring back cheaper electronic gadgets or cosmetics.

The level of awareness is very high, so the skimming strategy must go hand in hand with the right one communication strategy. The customer must be sure that the product is unique and worth its price. At the same time, it may be necessary to raise certain artificial barriers, such as the lack of shipment to Poland from foreign stores of the chain selling the same.  

The final problem that a skimming strategy can pose is that the value of the product in the eyes of the customer will decline as the price drops. Suitable here too branding and advertising materials at a consistently high level can convince buyers that the item is cheaper, but still luxurious. If things remain available in the existing sales channels and are accompanied by careful packaging as before, the customer can feel pampered and pay less for the same quality. It is different when the main sales channel suddenly changes. Often this problem can be seen with premium brands that enter discount stores. If they move sales there, change prices and packaging, and the quality doesn't stay the same, the company will eventually lose trust and reputation.

The final problem is when high initial prices keep too many buyers from buying. The market is growing slowly and the competition has a lot of time to work on their own goods. As a result, it may turn out that when it enters the market with them, they will be significantly cheaper and refined. Customers will quickly forget about the expensive and less modern prototype.

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