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What is Skimming?

Skimming

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Skimming

“Skimming” can refer to multiple contexts, but here are the most common ones:

  • Pricing Strategy: Skimming, or price skimming, is a pricing strategy in which a company sets a high initial price for a new product or service at its introduction, then lowers the price over time. This strategy allows a company to maximize its profits from early adopters who are willing to pay a premium before targeting more price-sensitive segments of the market.
    Example: A tech company releases a new smartphone with innovative features. The initial launch price is set high, attracting enthusiasts and early adopters willing to pay a premium. As sales slow down and newer models are introduced, the company reduces the price to attract a broader customer base.
  • Fraudulent Activity: Skimming is also a term used to describe a type of credit card fraud where criminals use a small device, called a skimmer, to illegally collect data from the magnetic stripe of a credit or debit card. This information can then be used to make unauthorized transactions or produce counterfeit cards.
    Example: A criminal places a skimming device on an ATM’s card slot. When unsuspecting customers use the ATM, the skimmer captures the information from their cards. The criminal later retrieves the skimmer and downloads the stolen card data.
  • Financial Misappropriation: In a business context, skimming can refer to the act of taking cash “off the top” before it is recorded as revenue. It’s a form of embezzlement.
    Example: An employee at a retail store might take money from a customer and not register the sale, pocketing the cash.

Each of these contexts for skimming carries different implications—ranging from legitimate business strategies to illegal activities.

Example of Skimming

Given that “skimming” has multiple meanings, I’ll provide an example for both the pricing strategy and the fraudulent activity:

  • Pricing Strategy – Skimming:
    Scenario: EliteSound, a renowned headphone manufacturer, has developed a new model of wireless headphones with groundbreaking noise-canceling technology and a battery life that’s unmatched in the market. The company knows that audiophiles and tech enthusiasts will be eager to get their hands on this latest innovation.
    Implementation: EliteSound launches the headphones at a price of $500, targeting early adopters and those who value cutting-edge technology regardless of price. After a few months, once this initial market segment has been tapped and competitors begin to introduce similar technologies, EliteSound reduces the price to $400. This attracts a broader customer base. As time goes on and newer models are developed, the price might be further reduced to $300, appealing to an even wider audience and continuing to drive sales.
  • Fraudulent Activity – Skimming:
    Scenario: Jane frequently visits her local gas station to fill up her car. Unbeknownst to her and other customers, a criminal has placed a skimming device on one of the gas pumps. This device is designed to blend in and go unnoticed, appearing as a standard part of the pump.
    Implementation: Every time a customer uses their credit or debit card to pay at the pump, the skimmer captures the card’s data. After several days, the criminal discreetly retrieves the device and downloads the stolen card information. With this data, the criminal can make unauthorized purchases, potentially causing financial distress and inconvenience to the unsuspecting victims.

In both examples, the act of “skimming” is executed, but the context and implications are vastly different.

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