PRICE

GROUP 3
 Price
Price is the cost of the product that the consumer pays.
During product marketing, it is important to set a price that
reflects the current market trends and is affordable for
consumers, yet at the same time is profitable for the
business. Price can fluctuate based on the supply and
demand and the product's sales cycle. While some
businesses might lower the price to compete with the
market, others might inflate it -- especially if they are
promoting a luxury brand.
 Example
Price points play a vital role in making a product
successful. For example, if a product is overpriced,
only a few consumers will purchase it. Conversely, a
product that is priced too low can give consumers an
impression of inferior quality, thus preventing them
from purchasing it.
 Pricing Strategies
Price Skimming Penetration Pricing

Value-Based Pricing Cost-Plus Pricing

Competitive Pricing
 Price Skimming
Companies use price skimming when they are
introducing innovative new products that have no
competition. They charge a high price at first, then lower
it over time.
 Price Skimming
If you lead your market and are selling a premium product or service, a
dismissive pricing approach may be an option.

In such an approach, you price as you wish and do not react to what your
competitors are doing. In fact, ignoring them can increase the size of the protective
moat around your market leadership.
Is this approach sustainable? It is, if you’re confident that you understand your
customer well, that your pricing reflects the value and that the information on
which you base these beliefs is sound.
On the flip side, this confidence may be misplaced, which is dismissive pricing’s
Achilles’ heel. By ignoring competitors, you may be vulnerable to surprises in the
market.
 Penetration Pricing
Penetration pricing makes sense when you’re setting a low price early on
to quickly build a large customer base.
For example, in a market with numerous similar products and customers
sensitive to price, a significantly lower price can make your product stand
out. You can motivate customers to switch brands and build demand for
your product. As a result, that increase in sales volume may bring
economies of scale and reduce your unit cost.
 Penetration Pricing
A company may instead decide to use penetration pricing to
establish a technology standard. Some video console makers (e.g.,
Nintendo, PlayStation, and Xbox) took this approach, offering low
prices for their machines, because most of the money they made was
not from the console, but from the games.
 Value-Based Pricing
In value-based pricing, the perceived value to the customer is
primarily based on how well it’s suited to the needs and wants
of each customer.
When a price doesn’t work, the answer isn’t just to lower it, but to
determine how it can better match customer value. That may
mean altering the product to better suit the market.
 Value-Based Pricing
In an ideal world, all entrepreneurs would use value-based pricing. But
entrepreneurs who sell a commodity-like service or product, such as
warehousing or plain white t-shirts, are more likely to compete on low
costs and low prices.
For entrepreneurs offering products that stand out in the market—for
example, artisanal goods, high-tech products or unique services—value-
based pricing will help better convey the uniqueness they’re offering.
 Cost-Plus Pricing
Many businesspeople and consumers think that cost-plus
pricing, or mark-up pricing, is the only way to price. This
strategy brings together all the contributing costs for the
unit to be sold, with a fixed percentage added onto the
subtotal.
 Competitive Pricing
“If I’m selling a product that’s similar to others, like peanut butter or
shampoo,” says Dolansky, “part of my job is making sure I know what the
competitors are doing, price-wise, and making any necessary
adjustments.”

That’s competitive pricing strategy in a nutshell.

You can take one of three approaches with competitive pricing strategy:
Co-operative pricing
Aggressive Pricing
Dismissive Pricing
 Co-operative Pricing
In co-operative pricing, you match what your competitor is
doing. A competitor’s one-dollar increase leads you to hike your
price by a dollar. Their two-dollar price cut leads to the same on
your part. By doing this, you’re maintaining the status quo.

Co-operative pricing is similar to the way gas stations price

their products for example.
 Aggressive Pricing
“In an aggressive stance, you’re saying ‘If you raise your price, I’ll keep
mine the same,’” says Dolansky. “And if you lower your price, I’m going to lower
mine by more. You’re trying to increase the distance between you and your
competitor. You’re saying that whatever the other one does, they better not mess
with your prices or it will get a whole lot worse for them.”
Clearly, this approach is not for everybody. A business that’s pricing
aggressively needs to be flying above the competition, with healthy margins it can
cut into.
The most likely trend for this strategy is a progressive lowering of prices.
But if sales volume dips, the company risks running into financial trouble.
 Dismissive Pricing
If you lead your market and are selling a premium product or service, a
dismissive pricing approach may be an option.

In such an approach, you price as you wish and do not react to what your
competitors are doing. In fact, ignoring them can increase the size of the
protective moat around your market leadership. Is this approach sustainable? It
is, if you’re confident that you understand your customer well, that your pricing
reflects the value and that the information on which you base these beliefs is
sound. On the flip side, this confidence may be misplaced, which is dismissive
pricing’s Achilles’ heel. By ignoring competitors, you may be vulnerable to
surprises in the market.