creaming

Competitive strategy that depends upon a business organization selling at a high profit to a small market segment. Price creaming involves selling goods at a very high price to a small number of consumers. This pricing strategy is often adopted by manufacturers when they first bring out a new product, such as a computer model. Later, when the company has recouped some of its fixed costs such as research and development, when higher sales lead to economies of scale and competitors bring out similar models, the manufacturer will reduce price and increase sales.

Creaming can also occur in a market where a producer sells to customers whom it is relatively cheap to supply. For example, private companies if allowed to compete in the market for letter delivery would have an incentive to offer a cheap service but only within city areas, leaving high-cost low-volume services in rural areas to a state postal service.