What pricing strategy involves setting a high price for a highly differentiated product with low price elasticity of demand?

The pricing strategy that involves setting a high price for a highly differentiated product, particularly when the product has low price elasticity of demand, is price skimming. This approach is often used for innovative or unique products that have distinct features that appeal to a specific market segment willing to pay a premium price.

By initially setting a high price, businesses can maximize their revenue from early adopters who are less sensitive to price changes. This strategy not only reflects the perceived value of the product but also helps to recoup the high research and development costs associated with creating it. As the market becomes more saturated and competition may increase, companies often lower the price gradually to attract more price-sensitive customers. This gradual reduction allows them to capture a wider audience while still benefiting from the higher initial price point.

The other pricing strategies do not align with the characteristics described in the question. Psychological pricing, for instance, focuses on creating an illusion of value through price manipulation (like pricing a product at $9.99 instead of $10). Price discrimination involves charging different prices to different consumer groups based on their willingness to pay, which does not necessarily imply a high initial price. Promotional pricing is aimed at temporarily reducing prices to spur demand, contrary to the idea of maintaining a high price