Introduction to Marketing

Marketing Mix: Price & Pricing Strategies

Pricing Strategy Definition Advantages Disadvantages Example of a

product / service
/ company

Market skimming ● Setting a high price ● Reach BEP quickly ● If competition ● Tesla.
for the product and cover initial enters the market ● Only
before competitors development costs before a company company
enter the market (R&D, advertising, reaches BEP, it is known for
● If you’re the only distribution) a major luxury
one with the competitive electric
product, you can disadvantage cars, little
price however you to no
like (within reason) competition
.

Penetration pricing ● Initially setting a low ● Can reach BEP ● Very risky if ● Tim
price for the product quickly by charging demand is not Hortons /
to attract customers lower prices & estimated McCafe.
and generate having higher properly – ● Their
demand demand (increase company will coffee is
● Price very low, units sold) suffer great priced
much lower than financial loss. much lower
competitors, profit Can only use if than almost
very low, but sell a variable costs are anywhere
lot because of it: low else.
selling a lot
generates demand
and attracts
customers
Introduction to Marketing
Marketing Mix: Price & Pricing Strategies

Competitive ● Setting prices ● The benchmark for ● Must keep up to ● TCL.

pricing similarly to price is set by the date with ● Relatively
competitors. “leader” who usually competitors’ unknown
● The battle for has the highest prices brand of
market share is market share phone,
fought with USP’s priced
and promotions. similarly to
other
phone
companies
(~$300).

Leader Pricing ● Offering a product at ● Increase in sales as ● Risk in making a ● Costco /

a low price to attract price goes down loss if the Kirkland.
customers, low-price product ● Their food
expecting that they is not successful / is
buy something else does not fulfil its extremely
once they’re there purpose cheap, but
people buy
other things
as they’re
in the store.

Price Lining ● Putting all products ● Convenient for ● Inflation or ● AirBnB.

priced similarly in customers who often customer ● All similarly
one place have a budget purchasing trends priced
are not suites are
considered; a posted in
very similar
Introduction to Marketing
Marketing Mix: Price & Pricing Strategies
one-dimensional places /
way of suites can
categorising be filtered
products. by price
range.

Everyday Low ● Positioning a store ● Creates / adds to a ● Risk of being ● Walmart.

Prices as a low-price store brand, helps with associated with ● Things are
brand recognition low quality in described
● Simplifies the addition to low as
marketing process in prices “Walmart
this way. versions” to
mean they
are
cheaper
and/or of
less quality.

Super Sizing ● Adding a low-cost ● Profits are generally ● Subject to extra ● Kinder
item to a product to increased; bigger is risk if the extra Surprise
increase its selling often attributed with add-on item Egg.
price and increase better. suddenly ● Add-on toy
profit becomes scarce; to
more things to chocolate
keep track of and to increase
manage, sales.
maintain.

Negotiated Pricing ● When a buyer ● Make customers ● Risk of not ● Kijiji /

makes offers to happy / satisfied, satisfying the Craigslist /
purchase & a seller increasing rapport buyer / giving Facebook
Introduction to Marketing
Marketing Mix: Price & Pricing Strategies
makes an offer to them too much Marketplac
sell a product for power to change e.
less than its the price in your ● These
published price disfavour places
allow
customers
to contact
their sellers
and
arrange
prices /
pickup
details
themselves
.

Interest Free ● When customers ● Improves cash flow ● Can be expensive ● IKEA
Pricing can purchase an and increase for businesses, Projekt
item with low or no working capital, as as they have to Card.
interest they receive money cover the cost of ● Allows
in instalments financing the sale payments
regularly and will not make for
as much profit products to
be made
over time
with no
interest.

Combo Pricing ● When two or more ● Increases profit ● Can come at a ● Pizza
products are offered margin and inventory loss to the Pizza.
as a single package management by company if the ● They offer
Introduction to Marketing
Marketing Mix: Price & Pricing Strategies
with a discounted selling more discount must be food
price. products per sale too low for combos.
and reducing unsold perceived value
amounts or if the combo
doesn’t sell

Psychological ● Instead of pricing at ● Helps differentiate ● There is a lack of ● Amazon.

Pricing a whole number, from competitors by transparency with ● Products
pricing a few cents seeming lower the customer, are often
lower for priced, even if not in which can be priced with
appearances. reality seen as an end of
● E.g. $300 to deceptive and .99
$299.99 immoral