Pricing Strategies

• Financial Objectives that may influence pricing include: Maximising profit, profit/ROI targets and cash flow
• Marketing Objectives influencing pricing include: Maintain/improve market share, Competition, Building Brand Identity
• Price Methods are used to calculate actual prices set
• Pricing strategies are adopted over medium to long term to achieve marketing objectives
• Pricing tactics are adopted in the short run to suit particular situations
• Competitors significantly influence how pricing is set
• Price takers have no option but to charge the ruling market price
• Price makers are able to fix their own price
• Price leaders price changes are followed by rivals
• Price followers follow the price changing lead of the market leader
• Costs have important influence on pricing
• Popular method of cost based pricing is “mark up” - often used in retailing
• Benefits of using cost to influence pricing: Easy to calculate, Price increases can be justified and confidence products are being sold at profit
• Drawbacks of using cost to influence pricing: Ignores PED and competitors, Price may be set lower than what customers are willing to pay.
• Price skimming is where price is set high to maximise profit then reduced.
• Price skimming targets multiple segments at different times
• Price skimming works well for products causing excitement with “early adopters”
• Price skimming is best used in introduction or early growth stage of product life cycle
• Penetration Pricing offers product at low introductory price.
• Penetration pricing aims to gain market share quickly and build customer usage and loyalty.
• Penetration pricing also builds sales of higher priced related items
• Dynamic Pricing is where prices are flexible for products, increasing and decreasing according to demand
• Examples of Dynamic Pricing: Uber and Amazon