PRICING STRATEGIES

Lesson 9
 PREMIUM PRICING
• Businesses set costs higher than their competitors
• Often most effective in the early days of a product’s life
cycle, and ideal for small businesses that sell unique
goods
• Because customers need to perceive products as being
worth the higher price tag, a business must work hard
to create a value perception. Along with creating a high-
quality product, owners should ensure their marketing
efforts, the product’s packaging and the store’s décor all
combine to support the premium price.
 PENETRATION PRICING
• Aim to attract buyers by offering lower prices on goods
and services. While many new companies use this
technique to draw attention away from their competition,
penetration pricing does tend to result in an initial loss of
income for the business.
• Over time, however, the increase in awareness can drive
profits and help small businesses to stand out from the
crowd. In the long run, after sufficiently penetrating a
market, companies often wind up raising their prices to
better reflect the state of their position within the market.
 ECONOMY PRICING
• Aims to attract the most price-conscious of
consumers
• Used by a wide range of businesses including
generic food suppliers and discount retailers,
but can be dangerous for small ones
• Businesses minimize the costs associated with
marketing and production in order to keep
product prices down. As a result, customers can
purchase the products they need without frills.
 PRICE SKIMMING
• Involves setting rates high during the introductory
phase. The company then lowers prices gradually as
competitor goods appear on the market
• Designed to help businesses maximize sales on new
products and services
• One of the benefits of price skimming is that it allows
businesses to maximize profits on early adopters before
dropping prices to attract more price-sensitive
consumers. Not only does price skimming help a small
business recover its development costs, but it also
creates an illusion of quality and exclusivity when your
item is first introduced to the marketplace.
 PSYCHOLOGICAL PRICING
• Refers to techniques that marketers use to
encourage customers to respond on emotional
levels rather than logical ones.
• One explanation for this trend is that
consumers tend to put more attention on the
first number on a price tag than the last.
• The goal of psychology pricing is to increase
demand by creating an illusion of enhanced
value for the consumer.
 BUNDLE PRICING
• Small businesses sell multiple products for a lower
rate than consumers would face if they purchased
each item individually
• An effective way of moving unsold items that are
taking up space in the facility,
• Can also increase the value perception in the eyes of
the customers, since it is essentially giving them
something for free.
• Effective for companies that sell complimentary
products
PRICING METHODS
 COST-BASED PRICING
• Refers to a pricing method in which some
percentage of desired profit margins is added to
the cost of the product to obtain the final price
• A certain percentage of the total cost of
production is added to the cost of the product
to determine its selling price.
• Two types: cost-plus pricing or average-cost
pricing and markup pricing
 COST-BASED PRICING
1. Cost – plus pricing – a fixed percentage, or
mark-up, is added to the total cost to set the
price.
2. Mark-up Pricing – the fixed amount or the
percentage of cost of the product is added to
product’s price to get its selling price
a. Mark-up as the percentage of cost
b. Mark-up as the percentage of selling price
 DEMAND-BASED PRICING
• Refers to a pricing method in which the price
of a product is finalized according to its
demand.
• If the demand of a product is more, an
organization prefers to set high prices for
products to gain profit; whereas, if the
demand of a product is less, the low prices are
charged to attract the customers.
 COMPETITION-BASED PRICING
• Refers to a method in which an organization
considers the prices of competitors’ products
to set the prices of its own products.
• The organization may charge higher, lower, or
equal prices as compared to the prices of its
competitors.
 OTHER PRICING METHODS
• Value Pricing - a method in which an organization
tries to win loyal customers by charging low
prices for their high-quality products.
• The organization aims to become a low cost
producer without sacrificing the quality
• It can deliver high- quality products at low prices
by improving its research and development
process.
• Also called value-optimized pricing.
 OTHER PRICING METHODS
• Target Return Pricing - Helps in achieving the
required rate of return on investment done for
a product.
• the price of a product is fixed on the basis of
expected profit.
 OTHER PRICING METHODS
• Going Rate Pricing - a method in which an
organization sets the price of a product
according to the prevailing price trends in the
market.
• The pricing strategy adopted by the
organization can be same or similar to other
organizations.
• The prices set by the market leaders are
followed by all the organizations in the industry.
 OTHER PRICING METHODS
• Transfer Pricing - Involves selling of goods and
services within the departments of the organization.
• Done to manage the profit and loss ratios of
different departments within the organization. One
department of an organization can sell its products
to other departments at low prices.
• Sometimes, transfer pricing is used to show higher
profits in the organization by showing fake sales of
products within departments.
• Video
• So, How do we price our product?