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Pricing Strategies

By Edited Dec 25, 2015 0 0

Price is how much a business will charge customers. They can use several pricing strategies to decide what is best.

 Value or Low Price is when the business sets a lower price than competitors. This is only appropriate where there is little brand loyalty and competition in the marketplace is high. The profit margins may well be low so the business is aiming to sell high volume.

 Competitive or Market Price matches their price to that of competitors.  If the products are similar then how much it costs is not an issue. Firms may then compete in terms of offering quality service and customer satisfaction.

 Premium or High Price is often associated with high quality products, goods and services. Image and quality is crucial as if it is not perceived to be exclusive or of good quality, consumer word of mouth will damage your reputation. For example Apple products such as the iPad are priced far higher than rival tablet PCs.

 Market Skimming is a strategy used when a company uses a high price initially for a new product where there is little competition. Gradually this is lowered to ‘skim the cream’ off the market to make it more affordable to customers. This is common in electronic products such as the PS4 or X-Box. The original price is very high but will gradually come down in stages.

 Penetration Pricing is used to introduce a product into an established market.  This permits the business to gain market share relatively quickly.  This is usually set low to attract customers.  Once the product is established price can increase. Many low cost airlines or bus companies use this tactic when opening a new route.

 Predatory Pricing (aka Destroyer Pricing) is when a business sets a very low price in order to eliminate competitors.  A product is probably being sold at a loss, however once competition is destroyed the price may increase to the market standard. This practise is often illegal in many countries. Rentokill in the UK advertised nationally at one rate but in targeted local areas they undercut their competitors.

 Promotional Pricing is used to boost sales and create interest in a product by lowering the price.  Many supermarkets use this for some of their sales lines, as loss leaders.

  Demand-orientated Pricing is when customers may experience the same product but pay different rates for it. The cost for customers will vary with the demand, and may be seasonal, for example hotel rooms and flights.

 Psychological Pricing is when a firm costs a good at $9.99 rather than $10 to make it seem more affordable to consumers.

 Cost-plus pricing is often used in the fashion industry. This is when a business will add a mark-up percentage on to the cost of the good in order to make a profit. For example if a dress was bought in for $10 and they decide to charge customers $15, then the mark-up is 50%.



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