Pricing Strategies and Approaches to Pricing

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4. Price Skimming

Designed to help businesses maximize sales on new products and services, price skimming involves setting rates high during the introductory phase. The company then lowers prices gradually as competitor goods appear on the market. One of the benefits of price skimming is that it allows businesses to maximize profits on early adopters before dropping prices to attract more price-sensitive consumers. Not only does price skimming help a small business recoup its development costs, but it also creates an illusion of quality and exclusivity when your item is first introduced to the marketplace.

1) mark-up pricing

- Is to have a fixed mark-up on the cost of the product to set the price, ex: retail stores

4 General Pricing Approaches

1) mark-up pricing 2) value-based pricing (demand-based pricing) 3) value pricing 4) competition-based pricing

6 pricing strategies

1. Pricing at a Premium 2.Pricing for Market Penetration 3. Economy Pricing 4. Price Skimming 5. Psychology Pricing 6. Bundle Pricing

2. Pricing for Market Penetration

A penetration pricing strategy is designed to capture market share by entering the market with a low price relative to the competition to attract buyers. The idea is that the business will be able to raise awareness and get people to try the product. Even though penetration pricing may initially create a loss for the company, the hope is that it will help to generate word-of-mouth and create awareness amid a crowded market category.

3. Economy Pricing

Economy pricing is a familiar pricing strategy for organizations that include Wal-Mart, whose brand is based on this strategy. Aldi, a food store, is another example of economy pricing strategy. Companies take a very basic, low-cost approach to marketing--nothing fancy, just the bare minimum to keep prices low and attract a specific segment of the market that is very price sensitive

3) value pricing

Is offering the right combination of quality and good service at a fair price, ex: value meal menu

2) Demand value-based pricing (demand-based pricing)

Is setting price based on buyers' perceptions of value independent of cost, ex: louis vuitton and rolex (nobody ever questioned how much it costs to make a rolex cost, price is not in relation to cost. people base it on how many people have it, brand name)

4) competition-based pricing

Is to set price following that of the industry leader ex: breakfast cereal (ex: kellogs

1. Pricing at a Premium

Premium pricing strategy establishes a price higher than the competitors. It's a strategy that can be effectively used when there is something unique about the product or when the product is first to market and the business has a distinct competitive advantage. Premium pricing can be a good strategy for companies entering the market with a new market and hoping to maximize revenue during the early stages of the product life cycle.

6. Bundle Pricing

With bundle pricing, small businesses sell multiple products for a lower rate than consumers would face if they purchased each item individually. Not only is bundling goods an effective way of moving unsold items that are taking up space in your facility, but it can also increase the value perception in the eyes of your customers, since you're essentially giving them something for free. Bundle pricing is more effective for companies that sell complimentary products. For example, a restaurant can take advantage of bundle pricing by including dessert with every entrée sold on a particular day of the week. Small businesses should keep in mind that the profits they earn on the higher-value items must make up for the losses they take on the lower-value product.

5. Psychology Pricing

With the economy still limping back to full health, price remains a major concern for American consumers. Psychology pricing refers to techniques that marketers use to encourage customers to respond on emotional levels rather than logical ones. For example, setting the price of a watch at $199 is proven to attract more consumers than setting it at $200, even though the true difference here is quite small. One explanation for this trend is that consumers tend to put more attention on the first number on a price tag than the last. The goal of psychology pricing is to increase demand by creating an illusion of enhanced value for the consumer.


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