Final answer:
Price skimming fails for “me-too” products as they offer no unique value to justify higher prices compared to similar, competitive products in the market.
Step-by-step explanation:
Price skimming strategy is not likely to succeed for a “me-too” product, which is very similar to an existing product on the market, primarily because the foundation of price skimming relies on uniqueness and innovation. Price skimming involves setting a high price for a new product to maximize profits from early adopters who are willing to pay more for the novelty or unique features of the product. When a product is simply a copy or very similar to existing products (“me-too”), there is no perceived added value to justify a higher price compared to competitors.
Competitive pricing becomes essential when dealing with products that lack differentiation. If the price is set higher than competitor products, consumers have no incentive to choose the “me-too” product over established brands, leading to a potential loss of sales for the company using a skimming approach. This strategy is more viable for companies that introduce breakthrough innovations, as they can capitalize on the lack of equivalent alternatives in the market.
The information provided in the reference material indicates that when products are indistinguishable, firms should not raise prices above competitors, as they risk losing all their sales. Additionally, factors like economies of scale and established market presence can make price competition especially fierce for new entrants, further illustrating how a “me-too” product would struggle with a price skimming strategy.