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Types of Pricing Strategies

The document discusses various pricing strategies used by organizations: 1. Penetration pricing involves initially setting a low price to gain market share, then gradually increasing the price as the customer base grows. 2. Skimming pricing sets an initially high price that is gradually lowered over time to target different market segments sequentially. 3. Competition pricing matches or adjusts the firm's prices relative to competitors' prices. 4. Product line pricing and optional pricing involve setting different prices for variations or additions within a product range.

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2K views

Types of Pricing Strategies

The document discusses various pricing strategies used by organizations: 1. Penetration pricing involves initially setting a low price to gain market share, then gradually increasing the price as the customer base grows. 2. Skimming pricing sets an initially high price that is gradually lowered over time to target different market segments sequentially. 3. Competition pricing matches or adjusts the firm's prices relative to competitors' prices. 4. Product line pricing and optional pricing involve setting different prices for variations or additions within a product range.

Uploaded by

prosmatic
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Pricing Strategy Penetration pricing:

Definition Here the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price. The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

Example A television satellite company sets a low price to get subscribers then increases the price as their customer base increases. A games console company reduces the price of their console over 5 years, charging a premium at launch and lowest price near the end of its life cycle.

Skimming pricing:

Competition pricing

Setting a price in comparison with Some firms offer a price matching competitors. Really a firm has three service to match what their options and these are to price lower, competitors are offering. price the same or price higher. Pricing different products within the DVD manufacturer offering different same product range at different price DVD recorders with different features points. E.g. at different prices eg A HD and non T-Shirt Banana Republic (Very Expensive) HD version. The greater the features T-Shirt by GAP is just (Expensive) and the benefit obtained the greater T-Shirt by Old Navy (Economical) the consumer will pay. This form of price discrimination assists the company in maximizing turnover and profits. The organization sells optional extras Extra accessories with mobile i.e. along with the product to maximize its pouch, Bluetooth, headphones, smart turnover. tunes, lighting etc A razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product Line Pricing:

Optional pricing:

Where products have complements, Captive Product companies will charge a premium price where the consumer is captured. Pricing (Interdependent products) By-Product Pricing Psychological Pricing

Setting a price for by-products in order B.D Syringe, Cherat Cement wastage, to make the main product price competitive. Faisalabad Textile---waste clothes This approach is used when the marketer wants the consumer to respond on an 999 R.s by BATA not 1000. emotional, rather than rational basis. Past experience, imaginary pricing Pricing to promote a product is a very Buy one get one free. common application. Stickers on car (McDonalds) Dunkin Donut and Ufone etc. Geographical pricing is evident where Where shipping costs increase price. there are variations in price in different E.g. Prices of food commodities in parts of the world. hilly areas.

Reference Prices Prices that buyer carry in their mind Promotional Pricing Geographical Pricing

Zone Delivered Pricing

Divide the country in different zones and Prices of food commodities in fix the prices on the basis of distance, Peshawar and the prices of same food the more distant the zone, the higher the commodities in hilly areas. price due to high transportation charges.

Geographically pricing strategy, same UniformPostage stamp pricing, Pepsi etc. delivered Pricing prices throughout the country. Basing Point Pricing Geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost that city to the customer. Alto Cars 525,000 R.s (Prices are only for Karachi). If someone buys this car in Peshawar or Lahore, the customers will pay the
freight cost also i.e. Karachi to Peshawar

Geographical Pricing Strategy in which CIF--- Carriage Insurance Freight Free on board goods are placed free on board a carrier. (FOB-origin) The customers pay the freight from the Alto Cars 525,000 R.s (Prices are Pricing factory to the destination. only for Karachi). FreightAbsorption Pricing Segmented Pricing Geographical pricing strategy, in which Freight pricing is used for market seller absorb all or part of the freight penetration and to hold on to charges in order to get desired business. increasingly competitive markets. Different price for different segments In buses (Students and senior citizens pay 50% of rent) Price of Pepsi in winter and summer, Dell uses real dynamic pricing to achieve real time balancing of supply and demand for computers.

Adjusting prices continually to meet the needs of individual customer and Dynamic Pricing situations. Flexible pricing, depends on demand and supply.

Product Bundle The organization bundles a group of Buy one get one free, Give away etc products at a reduced price. Pricing: Value Pricing Approach is used where external factors such as recession or increased competition Value meals at McDonalds. force companies to provide 'value' products and services to retain sales

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Quantity discount - offered to customers who purchase in large quantities. Cumulative quantity discount - a discount that increases as the cumulative quantity increases. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders. Seasonal discount - based on the time that the purchase is made and designed to reduce seasonal variation in sales. For example, the travel industry offers much lower off-season rates. Such discounts do not have to be based on time of the year. Cash discount - extended to customers who pay their bill before a specified date. Trade discount - a functional discount offered to channel members for performing their roles. For example, a trade discount may be offered to a small retailer who may not purchase in quantity but nonetheless performs the important retail function. Promotional discount - a short-term discounted price offered to stimulate sales.

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