PRICING

Price is anything that a customer is willing to give to get/buy something.

Pricing is about how much customers are willing to pay to get something.

Pricing Approaches

1. Skim Pricing
- the price is set at a certain level and can be lowered in small increments to increase
demand.
- usually starts with a high price. The price can be set high because the product is
sufficiently new and different, and that there is no distinct alternative.

A good example of this is iPhones. When Apple comes out with new model of
iPhone, it will be several months before other phone company comes up with similar
features. During that time, Apple can set the price high, and lower the price in small
increments to increase demand.

The thing is, the company knows that people are going to buy and that many
people are willing to pay for the high price just to be the first person to own one. So, the
company can wait until all the people who can afford the high price stop buying, then
lower the price to allow more people to buy. If everything is done correctly with this
approach, by the time competitors come out with their product, the price has been
skimmed low enough to be comparable with that of the competitors.

2. Penetration Pricing
- is used in a very competitive markets like consumer goods. The price is low to attract
customers and in effect, penetrating the market. An initial rush of customers means
profits through high volume of sales. When a sufficient customer base is established, the
price of the product is raised.

3. Competitive Pricing
- is readjusting the price of a product to meet its competitors and this leads to price wars
like in the case of fastfoods or gasoline stations.

4. Cost-Based Pricing
- is a category of pricing method that involves using the cost of producing the product to
help determine the price to the consumer. There are two methods used: Cost-plus Pricing
and Target Profit Pricing.

➢ Cost-plus Pricing is when the price of a product is a certain percentage mark-up from
its cost to produce.
 ➢ Target Profit Pricing is when the company determines the price of a product
depending how much profit the company wants to make. For instance, if a company
wants a 15% profit on its investment, marketers could do a lot of calculations and
determine the price of the product which would give them a 15% return on
investment. Hence, Target Profit Pricing sets the product’s price according to the
overall amount of profit the company wants to make.

Price Elasticity

Because of various factors, prices of products often change. If prices of product change,
the public notices and then demand for product changes. The change in demand caused by the
change in price is called elasticity.

Basically, there are two ways to describe the change in demand - elastic and inelastic.
Elastic is when demand changes greatly with the change in price of the product. Inelastic
means that demand hardly changes when the products changes price.

Elastic demand products are either non-essential or have lots of competitors (e.g. airline
tickets, soft drinks, electronic gadgets). If the companies producing these products raises their
prices, people hardly buy them. But if they change the price by lowering it (like in bargains or
discounted price), people then will race to buy in larger quantities. So, the change in price caused
a difference in how many customers would buy.

The other situation for elastic demand is when customers have a lot of alternative
products. If you use deodorant and then eventually doubles its price, there are plenty of other
options (Dove, Rexona, Belo, Milcu, Human Nature). So instead of paying twice as much, you are
more like to just buy another brand.

On the other hand, inelastic demand products are things that people are going to buy
regardless of the price, like water. People need water. If the price for water changes a few
centavos either way, people will still buy just as much. If the price for water were to double,
people would buy slightly less water. Inelastic demand products can be those with no alternative
or substitutes like medicines.

Assignment: Identify at least fifteen (15) other pricing strategies