Question

GTB Electronics enters a new market and needs to set its pricing strategy for the market. Which of the following is a favorable condition for implementing skim pricing?

A) There is little differentiation between competing products in the market.

B) There are many substitute products available, with a wide range of prices and features.

C) GTB's product position is about the same as competitors' positions in every area of product and service quality.

D) The market has many well-established competitors.

E) Entry into that particular market is difficult.

Answer 1

A favorable condition for skim pricing is when entry into the market is difficult, suggesting a market with high product differentiation and fewer competitors. Skim pricing allows a company to set high initial prices and is less effective in perfectly competitive markets with many substitutes and identical products.

Step-by-step explanation:

A favorable condition for GTB Electronics to implement skim pricing would be E) Entry into that particular market is difficult. This pricing strategy is preferable in a scenario where there is a high degree of product differentiation and limited competition due to barriers to entry. It allows a company to set higher prices initially and target customers who are willing to pay more for new and unique features or perceived brand value.

Skim pricing is less effective in perfectly competitive markets where products are virtually identical, and numerous substitutes exist. In such cases, consumers are less likely to pay a premium, as they can easily switch to other products. GTB Electronics would not benefit from skim pricing if its product was similar to competitors' offerings or if the market had many established competitors with identical products where sellers are price takers.