Pricing strategies feb
Download as PPTX, PDF0 likes760 views
The document discusses several pricing strategies including penetration pricing, market skimming, value pricing, loss leader pricing, psychological pricing, going rate pricing, tender pricing, price discrimination, destroyer pricing, and contribution pricing. Penetration pricing uses a low initial price to gain market share, while market skimming uses a high initial price for new products. Value pricing sets prices according to customer perceptions of worth.
Pricing strategies feb
- 1. Pricing Strategies Mrs. Jayashree Vispute
- 2. Penetration Pricing Price set to ‘penetrate the market’ ‘Low’ price to secure high volumes Typical in mass market products – chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles May be useful if launching into a new market Results in a Larger Market Share
- 3. Market Skimming High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Results in Fewer, More Profitable Sales. Eg. Playstation, jewellery, digital technology, new DVDs, etc.
- 4. Value Pricing Price set in accordance with customer perceptions about the value of the product/service Examples include status products/exclusive products Companies may be able to set prices according to perceived value.
- 5. Loss Leader Goods/services deliberately sold below cost to encourage sales elsewhere Typical in supermarkets, e.g. at Diwali, selling scented soap at Rs. 13 in the hope that people will be attracted to the store and buy other things Purchases of other items more than covers ‘loss’ on item sold
- 6. Psychological Pricing Used to play on consumer perceptions Classic example – Rs.999 instead of Rs.1000! Links with value pricing – high value goods priced according to what consumers THINK should be the price
- 7. Going Rate (Price Leadership) In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market May follow pricing leads of rivals especially where those rivals have a clear dominance of market share Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarket products, electrical goods – find very similar prices in all outlets
- 8. Tender Pricing Many contracts awarded on a tender basis Firm (or firms) submit their price for carrying out the work Purchaser then chooses which represents best value Mostly done in secret
- 9. Price Discrimination Charging a different price for the same good/service in different markets Requires each market to be impenetrable Requires different price elasticity of demand in each market Prices for rail travel differ for the same journey at different times of the day
- 10. Destroyer/Predatory Pricing Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants Anti-competitive and illegal if it can be proved
- 11. Contribution Pricing Contribution = Selling Price – Variable (direct costs) Prices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costs Similar in principle to marginal cost pricing Break-even analysis might be useful in such circumstances
- 12. Market Skimming Market Penetration >Setting a High Price for a New Product to Maximize Revenues from the Target Market. >Results in Fewer, More Profitable Sales. > Setting a Low Price for a New Product in Order to Attract a Large Number of Buyers. >Results in a Larger Market Share.
- 13. Pricing strategies Premium pricing Uses a high price, but gives a good product/service exchange e.g. Concorde, The Ritz Hotel Penetration pricing offers low price to gain market share - then increases price e.g. France Telecom - to attract new corporate clients (or Telewest cable) Economy pricing placed at ‘no frills’, low price e.g. Soups, spaghetti, beans - ‘economy’ brands
- 14. Price skimming where prices are high - usually during introduction e.g new albums or films on release ultimately prices will reduce to the ‘parity’ Psychological pricing to get a customer to respond on an emotional, rather than rational basis .e.g 99 not 100 ‘price point perspective Product line pricing rationale of a product range e.g. DairyMilk 20, three-pack 60, chotu-size 2 Pricing variations ‘off-peak’ pricing, early booking discounts,etc e.g offering a ‘cash back’ incentive for expensive goods
- 15. Optional product-pricing e.g. optional extras - BMW famously under-equipped Captive product pricing products that complement others e.g Gillette razors (low price) and blades (high price) Product-bundle pricing sellers combine several products at the same price e.g software, books, CDs. Promotional pricing BOGOF e.g. toothpaste, soups, etc
- 16. Geographical pricing different prices for customers in different parts of the world e.g.Include shipping costs, or place on PLC Value pricing usually during difficult economic conditions e.g. Value menus at McDonalds