Which pricing strategy involves setting a high initial price and lowering it over time?

The pricing strategy that involves setting a high initial price and lowering it over time is known as price skimming. This approach is commonly used when a company introduces a new, innovative product that has little to no competition initially. By setting a high price initially, the company can maximize profits from early adopters who are willing to pay a premium for the novelty and advanced features of the product. Over time, as the initial demand from this segment decreases, the price is gradually lowered to attract a broader customer base, including those who are more price-sensitive.

This strategy can be particularly effective in technology markets where product life cycles are short, and innovations quickly become obsolete. Price skimming allows businesses to recover development costs faster and can aid in positioning the product as a premium option in the market. The gradual price reduction also helps to maintain interest in the product over time as new customers are incentivized to purchase at lower price points.

In contrast, penetration pricing aims to attract a large number of customers quickly by setting a low initial price, which is very different from the high-to-low approach of price skimming. Other options like market segmentation and target marketing do not directly pertain to pricing strategies but rather focus on ways to identify and reach different customer groups.