Question

The average price Xerox charged when it introduced the first stand-alone fax machine was $12,700, quite a high price for what was then a new machine. This premium price was a way for Xerox to recoup some of the research and development costs that went into production. Xerox used ________.

Answer 1

Skimming pricing strategy

Step-by-step explanation:

Skimming refers to removing a major chunk out of something. With respect to pricing strategy, skimming refers to taking away the major share of industry profits, by charging a high price initially before competitors enter the market.

Such a pricing strategy is usually followed in the initial phase when a company launches a new, technologically superior product. So by the time competitors enter the arena, the company has already derived a major part of it's revenue and recovered it's product costs.

The given case illustrates such a pricing strategy followed by Xerox, whereby the company initially charged an exorbitant price for it's newly launched fax machine which was the first of it's kind.

Thus, by following skimming pricing strategy, Xerox recovered a major portion of it's research and development costs incurred.