ACCA Performance Management (F5) Certification Practice Exam

When is a market-skimming strategy most suitable?

1. In a saturated market with many competitors

2. For products with long life cycles

3. When there is limited competition for a new product

4. For everyday consumer goods

The correct answer is: When there is limited competition for a new product

A market-skimming strategy is most suitable when there is limited competition for a new product. This approach involves setting a high initial price to maximize profits from segments of the market that are willing to pay more, particularly in the early stages after the product launch. The rationale behind this strategy is to target those customers who perceive higher value in the new product and are less sensitive to price changes, allowing the company to recoup its research and development costs quickly. When a product enters the market with fewer competitors, it can command this higher price as consumers do not have many alternatives available. As competition increases over time, the company might then lower the price to attract more price-sensitive customers. This approach is often used in technology sectors, pharmaceuticals, or unique luxury products, where innovation lends a strong competitive advantage in the initial launch phase. In contrast, a saturated market with many competitors tends to lead to price competition, making a skimming strategy less effective. Similarly, everyday consumer goods usually rely on a more consistent pricing strategy given their nature and market dynamics, which does not support skimming. Products with long life cycles may also see shifts in pricing strategy over time rather than starting high and skimming. Thus, limited competition for a new product aligns perfectly with the essence