II.

PRICING STRATEGIES

Pricing strategy in marketing is the

pursuit of identifying the optimum price
for a product.

The pricing strategy tends to be one of

the more critical components of the
marketing mix and is focused on
generating revenue and ultimately
profit for the company.
II. PRICING STRATEGIES

COST-BASED METHODS

CUSTOMER-BASED
METHODS OF METHODS
PRICING
COMPETITION-BASED
METHODS
II. PRICING STRATEGIES
Cost-based Methods are based on the cost of
COST-BASED METHODS production, manufacturing, and distribution of a
product. The price of a product is determined by adding
a percentage of the manufacturing costs to the selling
price to make a profit.

Cost Plus Pricing Break-even Pricing

(Mark-up Pricing) (Target-return Pricing)
II. PRICING STRATEGIES
COST PLUS PRICING
(MARK-UP PRICING)
Cost Plus Pricing is a pricing
strategy in which price is
offered based on total cost
plus a desired profit. This
pricing strategy is normally
used by retailers.
COST-BASED METHODS
Advantages: Calculate the price easily;
Ensure profits; Simple for customers to
understand.
Disadvantages: Not Competition-aware
and Demand-aware; Result in different
prices compared to the market; Result
in unethical practice.
II. PRICING STRATEGIES
BREAK-EVEN PRICING
(TARGET-RETURN PRICING)
Break-even Pricing is a
pricing strategy that keeps
the price of the product in
such a manner that the
company is neither in profit
not in loss.
COST-BASED METHODS
Advantages: Suitable for business in the
initial stages of the development à
easier to gain market share and capture
customers of the competitors.
Disadvantages: Hard to increase prices
afterwards, hard to earn profit, easy to
get loss if costs are inaccurately
calculated.
II. PRICING STRATEGIES Customary Pricing

Demand Pricing
CUSTOMER-BASED METHODS
Product-line Pricing

Product bundle Pricing

Customer-based Methods take
account of customers’ needs Optional Pricing
and wants. This can give the
company flexibility to charge Skimming
different prices to different
customers, rising or falling to Psychological Pricing
match the size of the
customers’ wallet. Second-market
Discounting
II. PRICING STRATEGIES CUSTOMER-BASED METHODS

CUSTOMARY PRICING

Customary Pricing is a Advantages: easier to get consumers’

pricing strategy in which loyalty à retain the position in the
prices for goods are market.
services are maintained
over an extended period Disadvantages: increasing costs can
of time based on the make the company hard to earn
consumers’ expectation. expected profit.
II. PRICING STRATEGIES CUSTOMER-BASED METHODS

DEMAND PRICING

Demand Pricing is the most Advantages: Help the firm know

market-orientated which price level bring more profits
methods of pricing. à lead to potential high profit.
Different price levels will
be used based on Disadvantages: Estimating demand at
consumers’ demand and different price level is difficult to do
product’s perceived value. accurately.
II. PRICING STRATEGIES CUSTOMER-BASED METHODS
PRODUCT LINE PRICING
(PRODUCT LINING)
Advantages: Attract a large number of
Product Line Pricing is a consumers; help company earn more
pricing strategy that profits.
grouping goods and
services in the same
Disadvantages: When consumers are in
category into different
economic crisis (e.g., inflation, etc.);
price ranges based on their
company must be careful wit the
features and quality.
features he/she providing.
II. PRICING STRATEGIES
PRODUCT BUNDLE PRICING
Product Bundle Pricing is a
pricing strategy in which
several goods and/or
services are combined as a
bundle and offered at a
reduced price.
CUSTOMER-BASED METHODS
Advantages: Help the firm offer more sales
with lower costs; Get consumers to pay
more for less desirable items than they
would if sold individually; decrease
marketing and distribution cost; reduce
inventory waste.
Disadvantages: Create overwhelming; Be
difficult to use with increase in features.
II. PRICING STRATEGIES
OPTIONAL PRICING
Optional Pricing is a pricing
strategy which offers to sell
optional or accessory
goods or additional service
along with the main goods.
CUSTOMER-BASED METHODS
Advantages: Help the firm maximize
different kinds of products to be sold;
attract customers by reasonable price.
Disadvantages: Be difficult to attract all
kinds of consumers; May cause some
difficulties for consumers with limited
budget.
II. PRICING STRATEGIES
SKIMMING PRICING
Skimming Pricing is a pricing
strategy in which price of
goods or services is set high
at the time of launch and
then lowered as consumers
become more familiar with
it. This method targets early
adopters.
CUSTOMER-BASED METHODS
Advantages: Build high image for
high price products; Enable the firm
to capture early profits.
Disadvantages: Attract more
competitors; Discourage potential
consumers due to high price; not
suitable for crowded markets.
II. PRICING STRATEGIES CUSTOMER-BASED METHODS

PSYCHOLOGICAL PRICING

Psychological Pricing is a Advantages: Attract more consumers by

pricing strategy which prices à increase sales; Create better
relies on emotional consumer satisfaction.
response from consumers.
- Prestige pricing (Higher Disadvantages: Pay much attention to
price à quality) psychology of the consumer rather than
- Odd-even pricing (price the quality of goods or services; Fail to
seems lower) attract rational consumers.
II. PRICING STRATEGIES CUSTOMER-BASED METHODS

SECOND-MARKET DISCOUNTING

Second-market discounting
is a pricing strategy in Advantages: can easily increase sales;
which a goods or a service reduce inventory cost.
is offered at one price in a
market, and in a lower
Disadvantages: can harm the second
price in another. It is
market by lost wages and production
normally used when supply
facilities (esp. for developing countries).
is higher than demand.
II. PRICING STRATEGIES
Competitor-based
COMPETITION-BASED Pricing
METHODS
Penetration Pricing

Competitor-based methods
involve setting prices in relation Predatory Pricing
to the prices of the competitors.
This method focuses only on
the public information about Premium Pricing
competitors’ prices, not on the
consumer value.
II. PRICING STRATEGIES COMPETITION-BASED
METHODS
COMPETITOR- BASED
PRICING

Competitor Based Pricing is a

pricing strategy in which the Advantages: Avoid price wars which can
firm uses prices of competing damage the firm; Easy to perform.
products as a benchmark
instead of considering the own
costs or customer demand.
Disadvantages: Offer low profits; Find
à Meet-the competition strategy.
à Undercut-the-competition better ways to attract customers
strategy. through non-price methods.
II. PRICING STRATEGIES
PENETRATION PRICING
Penetration Pricing is the
practice of offering a low
price for a goods or service
during its initial offering in
order to lure customers
away from competitors.
COMPETITION-BASED
METHODS
Advantages: Discourage competition
from market entry; Capture a large part
of the market quickly.
Disadvantages: Require gear up for
mass production; Not be suitable for
products with short Product Life Cycle;
Damage the quality brand image.
II. PRICING STRATEGIES
PREDATORY PRICING
Predatory Pricing is a risky
pricing strategy where
price below the cost of
production is set in order
to drive competitors out
of the market or prevent
new entry entering the
market.
COMPETITION-BASED
METHODS
Advantages: Help the firm dominate
the market; Give more benefits for
consumers from low price (thus, can be
considered as customer-based pricing
method).
Disadvantages: May be illegal in
international business world.
II. PRICING STRATEGIES
PREMIUM PRICING
(PRESTIGE PRICING)
Premium Pricing establishes a
price higher than the competitors
to strengthen perceived quality
and establish a luxury brand
image. It is commonly used when
the firm has a distinct competitive
advantage or its brands are
recognized.
COMPETITION-BASED
METHODS
Advantages: Help the firm get high
profit margin; Increase entry
barriers; Increase brand value.
Disadvantages: Only target high-
end customers; Be easily badly
influenced by price fluctuations;
Sell only low volumes.