ACCA Performance Management (F5) Certification Practice Exam

Which strategy is best suited for a limited-life product?

1. Cost-plus pricing

2. Market-skimming pricing

3. Penetration pricing

4. Variable pricing

The correct answer is: Market-skimming pricing

Market-skimming pricing is particularly effective for limited-life products, especially when they are introduced to the market with distinct advantages or innovations. This strategy involves setting a high initial price when the product is launched, capitalizing on the novelty and unique aspects of the product. This approach attracts customers who are less price-sensitive and willing to pay a premium for the perceived value or exclusivity. As the product's life cycle progresses and competition increases or market saturation occurs, the price can be gradually lowered to attract more price-sensitive customers. This strategy helps to maximize profits in the early stage of the product's life when demand is high and the product is relatively unique. Given that the product will only be available for a limited time, starting with a higher price is beneficial to recoup costs and gain a competitive advantage before competition intensifies. In contrast, cost-plus pricing relies on calculating a markup over the costs, which may not capture the full market potential of a product, particularly one that is innovative or unique. Penetration pricing aims to attract a larger customer base through lower prices initially, which might not align with the goals of maximizing early profits in a limited-life scenario. Variable pricing, which involves adjusting prices based on demand fluctuations, may not be sufficiently effective for capturing