There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use.
Contents
1 Competition-based pricing
2 Cost-plus pricing
3 Creaming or skimming
4 Limit pricing
5 Loss leader
6 Market-oriented pricing
7 Penetration pricing
8 Price discrimination
9 Premium pricing
10 Predatory pricing
11 Contribution margin-based pricing
12 Psychological pricing
13 Dynamic pricing
14 Price leadership
15 Target pricing
16 Absorption pricing
17 Marginal-cost pricing
18 References
[edit] Competition-based pricing
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of
…show more content…
The idea of selling at a loss may appear to be in the public interest and therefore not often challenged. Only when the leader pushes up prices, it then becomes suspicious. Loss leadership can be similar to predatory pricing or cross subsidisation; both seen as anticompetitive practices.
[edit] Market-oriented pricing
Setting a price based upon analysis and research compiled from the targeted market. Also with the cost price.
[edit] Penetration pricing
Main article: penetration pricing
The price is deliberately set at low level to gain customer 's interest and establishing a foot-hold in the market.[2]
[edit] Price discrimination
Main article: price discrimination
Setting a different price for the same product in different segments to the market. For example, this can be for different ages or for different opening times, such as cinema tickets. Market orientated pricing is also a very simple form of pricing used by very new businesses. What it involves is, setting the price of your product/service according to research conducted on your target market.
[edit] Premium pricing
Main article: Premium pricing
Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy
The customer expects the prices to remain low for a long term. They are not ready for the subsequent rise in the price and when it happens they might switch to a competitor's product. Thus subsequent price hike leads to loss of market share
Predatory pricing is an exclusionary act by which a firm, in order to create or maintain a monopoly power, lowers its prices below the profit maximizing level in order to push rival firms out of the market or prevent them from ever entering the market. In the long run, this results to be a detriment to consumers. Once the competition has left the market, the company can then raise prices to a supracompetitive level and recoup the losses suffered by predatory pricing. This results in higher prices for the consumer. With no alternative product available, the consumer is left with no choice but to pay the high price.
One business decided to let their competition set their prices. And it had the potential of driving the company into bankruptcy.
Pricing is the most important aspect of the marketing mix. Price is the only element of the marketing mix, which produces a turnover for the organization. Pricing plays a crucial role in the product consumption. Pricing products too high or low results in loss of sales for the company. The pricing of each organization based on its corporative objective.
Pricing strategy can be defined as the strategy that aimed on finds the product best selling price to accomplish overall organizational objectives (Kurtz, 2012). Pricing strategic is directly related to product positioning. It is because the managers must consider how much the target market is willing to pay and cover back of the product cost. Therefore, Chatime has decided to lower its prices on milk tea to target on common people.
When trying to determine the correct price, a number of factors must be considered: the market and its segments, the size of each segment, the ability to reach each segment, what distribution channels to target, whether to vary price by segment, the usefulness of promotional offerings, and whether the goal is to skim or penetrate each market.
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are transacted at different prices by the same provider in different markets. In today’s society we see price discrimination in many places and you don’t even realize that it is price discrimination. Price differentiation is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy. It essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand. There are three different types of price discrimination. First Degree Price Discrimination involves charging consumers the maximum price that they are willing to pay. Second Degree Price Discrimination involves charging different prices depending upon the quantity consumed and lastly Third Degree Price Discrimination which involves charging different prices to different groups of people (EconomicsHelp, 2015).
Market-based pricing begins with evaluating market trends, competitor products, and consumer demand, to determine how the customer’s willingness to pay the asking price for the product (Grand Canyon University, 2016). Products in high-demand, like trendy, cutting-edge electronics, usually sell for a high price at first, at least until the item becomes more common, at which point people
The emergence of high-low pricing tactics materialized out of an earnest desire to retain a profitable margin of sales. Usually, this pricing strategy involves a period of high, often subjective, initial prices followed by a period of low discount prices. One can attribute the effectiveness of using the
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.
Keeping these realities in mind, it is very much obvious that for this market, we choose and follow a value based pricing and do not keep the price of the product too high. It is advisable rather to follow an average pricing and let the consumers build some enthusiasm around the product.
The process in which organizations determine what they will obtain in exchange for their products is called pricing. Some significant factors for pricing include Market conditions, competition, market place, cost of production and product quality.
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer.
Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).