Pricing strategy

• Pricing strategy = the approach which a business decides on for setting the price of its product or service.
• Cost plus pricing = the selling price of a product is determined by adding a fixed percentage to the cost of the product
• Price skimming = a firm charges the highest initial price that customers will pay and then lowers it over time.
• Penetration pricing = a firm sets a price that is below the market price to attract customers.
• predatory pricing = an illegal pricing strategy that relies on undercutting the competition long enough to force them out of the market
• Competitive prices = where a business bases its selling prices on the prices of its direct competitors rather than, for example, its own costs
• Psychological pricing = setting prices lower than a whole number — for example, $3.99
• Factors that determine the pricing strategy used:

  • Cost of production.
  • Competitor prices.
  • Value proposition.
  • Marketing strategy.
  • Profit margins.