pricing strategies - 2.2.2

• 1. Cost Plus Pricing

  price = unit cost + (mark up % x unit cost)

  the b adds a mark up percentage to the cost of the price to ensure profit on each sale.

  adv: easy to calculate, reliable

  disadv: high costs means high selling price, doesn't consider how much the customer is willing to pay
• Competition Based Pricing

  similar price to its competitors, you can charge more or less --> more customers are likely to pay after reviewing your competitors. more --> high quality products or good customer service over the competitors.

  adv: won't loose customers to competitors on price

  disadv: could make a loss if the price is too low.
• Penetration Pricing

  initially starts at a low price, and gradually increases over time

  --> start up business, Ryan Air, Netflix, Disney plus

  adv: attracts customers, may remain loyal after the price change

  disadv: low profit, may not remain loyal
• Price Skimming

  initially starts high but gradually decreases,makes it seem more desirable, used when initial demand is expected to be high. eg, iPhone

  adv: high price = more desirable = more profit

  disadv: by the time it's reduced, they may be something more desirable on the market, may put off customers
• Premium Pricing

  always keep the prices hight, not everyone can afford it = more desirable, creates a life goal --> high end, luxury stores

  adv: exclusive = high profit

  disadv: if disposable income falls, customers may look for cheaper subsitutes
• Predatory Pricing

  price is set so low that competitors will not be able to compete, loss-making, not sustainable --> against the LAW

  adv: can eliminate competition

  disadv: may lose money and jeopardise success
• Psychological Pricing

  makes customers believe they are getting the best deal for their money. eg. 9.99 / free shipping
• Influences - Technology

  • flexible prices eg. uber
  • in - product purchases
  • price comparison websites --> competition
  • as soon as new tech is released, the price of the older products must be reduced
• Influences - Competition

  • release a new product
  • improve and existing product
  • improve its customer service
  • reduce its price
  • have a sale
• Influences - Market Segments

  • some companies will target different customers with a different price
  • mass and niche markets
• Influences - Product Life Cycle

  • intro / growth - penetration pricing [ tech - price skimming ]
  • maturity - competition based pricing
  • decline - psychological pricing + promotion