Pricing Strategies and Examples

Example of Cost Based Pricing

If a firm operates in a very volatile industry, where costs are changing regularly no set price can be set, therefore the firm will decide on their mark up to confirm their pricing decision.

Quantity Discounts

Discounts for placing large orders.

Penetration Pricing

Here the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price.

Cost Based Pricing

The firm takes into account the cost of production and distribution, they then decide on a markup which they would like for profit to come to their final pricing decision.

Cost Plus Pricing

Here the firm adds a percentage to costs as profit margin to come to their final pricing decisions.

Coupons

Receive reduction at time of purchase.

Discounts and Allowances

Seller offering reductions from the usual price in exchange for the buyer to perform certain actions.

Competition Pricing

Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher.

Example of a Cash Discount

2/10 net 30

Example of Product Line Pricing

A DVD manufacturer offering different DVD recorders with different features at different prices e.g. A HD and non HD version.

Example of Competition Pricing

A firm has three options and these are to price lower, price the same or price higher. Some firms offer a price matching service to match what their competitors are offering.

Example of Skimming Pricing

A games console company reduces the price of their console over 5 years, charging a premium at launch and lowest price near the end of its life cycle.

Example of Penetration Pricing

A television satellite company sets a low price to get subscribers then increases the price as their customer base increases.

Example of Special Event Strategy

Black Friday sale.

Rebates

Buy product then send in the mail to receive discount.

Example of Cost Plus Pricing

For example it may cost $100 to produce a widget and the firm add 20% as a profit margin so the selling price would be $120.00

Example of Premium Pricing

Harrods, first class airline services, Porsche

Example of a Trade Discount

Manufacture discounts granted to wholesalers and retailers from suggested retail price.

Example of an Allowance

Money for trading in an older model of a product (Used Car)

Coupons and Rebates

Partial refunds provided by the manufacturer.

Product Line Pricing

Pricing different products within the same product range at different price points.

Loss Leader Pricing Strategy

Promotional pricing strategy used to increase store traffic by offering items below cost.

Bundle Pricing

The organization bundles a group of products at a reduced price. Common methods are buy one and get one free promotions or BOGOF's as they are now known.

Optional Pricing

The organization sells optional extras along with the product to maximize its turnover.

Skimming Pricing

The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

Premium Pricing

The price set is high to reflect the exclusiveness of the product

Psychological Pricing

The seller here will consider the psychology of price and the positioning of price within the market place

Example of Psychological Pricing

The seller will therefore charge $199 instead of $200.

Example of Optional Pricing

This strategy is used commonly within the car industry.

Example of Bundle Pricing

This strategy is very popular with supermarkets who often offer BOGOF strategies.