Question

When sales figures for one of the products of Silkskin Cosmetics, a moisturizer, began to fall with low margins and declining volumes, the company decided to raise the price of the moisturizer. As volumes fell further, the company continued to raise prices, thus increasing margins, until it reached a price at which customers refused to buy the product. This pricing strategy is known as ________ pricing.

A) skim

B) penetration

C) plus-one

D) low-cost leader

E) harvest

Answer 1

The pricing strategy used by Silkskin Cosmetics for its moisturizer, characterized by raising prices as sales volumes fall, is called harvest pricing. This strategy aims to increase margins and maximize profits on a declining product until the price becomes unacceptable to customers.

Step-by-step explanation:

The pricing strategy described where Silkskin Cosmetics is raising the price of a moisturizer as sales volumes decrease is known as harvest pricing. This strategy is often employed when a company wishes to maximize profits on a declining product by increasing margins, even though the sales volumes continue to fall. It is used until reaching a price point where the customers are no longer willing to purchase the product.

In a monopolistic or oligopolistic market, companies have more control over prices and may employ various pricing strategies. For example, predatory pricing can be used to deter new competitors from entering the market by setting prices low initially and raising them again once the competition is eliminated. Harvest pricing differs as it focuses on extracting maximum revenue from a product in its decline phase rather than engaging in competitive pricing tactics.