Pricing Strategies

• Price is the sum of money paid by a customer for a unit of a product
• Penetration pricing involves setting a low initial price for a new product in order to get a foothold in the market and gain market share
• During penetration pricing a firm will release a new product at a low price with the aim of enticing people to buy, once the product has been launched and built up a customer base the firm may raise the price
• Penetration pricing is likely to be used with a price elastic product in a mass market
• Cost plus pricing is used by setting the price as the cost per unit + a % markup on how much profit you want to earn
• Price skimming involves setting a high initial price for a new product in order to recoup costs
• In price skimming when a business releases a new product it often charges a high price targeting a segment of the market known as 'early adopters'
• In price skimming, businesses often base their initial promotional campaign around this idea, trying to create a 'must have' mentality amongst their target market
• Once the market has been 'skimmed off' in price skimming the company will offer a lower price
• Price leadership and price taking is where a large company sets a market price and the smaller firms tend to follow
• Predator (destroyer) pricing is when the business sets very low prices in order to drive other companies out of the market
• Amazon + Diapers.com are an example of predator pricing, where amazon drove diapers.com out of the market
• Loss Leaders is when a business sets lows prices for certain products in order to encourage consumers to buy other, full priced items
• Gilette Razors is an example of loss leaders, the heads of the razor is where they make profit
• Dynamic pricing occurs when prices are changing rapidly in response to changing demand conditions
• Ticketmaster is an example of dynamic pricing
• Psychological pricing is used to give an impression of value e.g. charging £1.99 instead of £2
• Premium pricing is when a premium price is constantly charged for a product
• In premium pricing a higher price is used to make it premium