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Pricing Strategies
Price
The amount of money expected, required, or given in payment for something.
Price is the money, good, or service exchanged for the ownership or use of a good or service. The various
names of price are the following:
Another Name of Price
Commodity Purchased
- Tuition
- Interest
- Taxes
- Subscriptions
- Royalty
- Rent
- Fare
- Fee
- Retainer
- Toll
- Salary
- Wage
- Commission
- Honorarium
- Dues
- Education
- Use of money
- Government service
- Regular receipt of a
periodical
- Use of copy right
- Use of asset
- Taxi or bus ride
- Services of a
physician
- Lawyer’s services
over a period of
time
- Long distance call
or travel on some
highways
- Services of an
executive or a
white collar worker
- Services of a blue
collar worker
- Salesperson’s
services
- Guest speaker’s
services
- Membership in a
union or club
Pricing Defined
Pricing may be defined as those activities involved in the determination of the price
at which products that will be offered for sale considering the various objectives of the firm.
Pricing Objectives
Before setting prices, the firm's pricing objectives must first be determined. Pricing objectives may consist or
any of the following:
1. profit-oriented objectives
2. sales-oriented objectives; or
3. status quo-oriented objectives.
Pricing Strategies
A business can use a variety of pricing strategies when selling a product or service. The Price can be set to
maximize profitability for each unit sold or from the market overall. It can be used to defend an existing market from
new entrants, to increase market share within a market or to enter a new market. Businesses may benefit from
lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market.
Finding the right pricing strategy is an important element in running a successful business.
Pricing Strategy Objectives
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MANAGERIAL ECONOMICS
Long Run Profits
Short Run Profits
Increase Sales Volume
Company Growth
Match Competitors Price
Create Interest & Excitement about the Product
Discourage Competitors from cutting Price
Social, Ethical & Ideological Objectives
Discourage New Entrants • Survival
Decisions in Pricing Strategy
Fixed & Variable Cost
Competition
Company Objectives
Proposed Positioning Strategies
Target Group & Willingness to Pay
External Market Demand
Internal Factors; Product Cost & Objectives of Company
Pricing Strategy for Challenging Economic Times
Pricing is a market consideration, not a cost consideration.
Understand your customers’ primary goals. Be clear on what the customer wants first, then set pricing and
bundling decisions.
Consider bundling products or services together. Always bundle a low- and high-valued product together.
This will create higher sales and greater profitability.
Understand your value proposition. Have a clear understanding of if and how your product or service is
differentiated from the competition.
Know where you are on the scale of "innovative-to-commoditized."
Build the customers’ perception of value. Constantly build on customer perception. The more subtle the
differentiation of the product or service, the more often customers need to be reminded of the value of your
product or service.
Factors Affecting Pricing
Organizational and Marketing Objectives
Pricing Objectives
Cost
Other Marketing Mix Variables
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MANAGERIAL ECONOMICS
Channel Member Expectation
Customer Interpretation and Response
Competition
Legal and Regulatory Issues
Pricing Strategies
Market Skimming Pricing
High Price low volume
Skim the Profit from the Market
Suitable for the products that have short life cycle or which will face competition at some
point in future.
Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target
Market.
Results in Fewer, But More Profitable Sales.
Use Under These Conditions:
Product’s quality and image must support its higher price.
Costs can’t be so high that they cancel the advantage of charging more.
Competitors shouldn’t be able to enter market easily and undercut the high price
Examples; Play Station, Digital Technology, Apple Products etc.
Value Pricing
Based on consumer Perception.
Price charged according to the Customers Perception.
Price set by the company as per the perceived value.
Example; Status Products/ Exclusive Products.
Loss Leader Pricing
Goods/services deliberately sold below cost to encourage sales elsewhere
Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people
will be attracted to the store and buy other things
Purchases of other items more than covers ‘loss’ on item sold
e.g. ‘Free’ mobile phone when taking on contract package
Psychological Pricing
Used to play on consumer perceptions
Classic example - £9.99 instead of £10.99!
Links with value pricing high value goods priced according to what consumers THINK
should be the price
Considers the psychology of prices and not simply the economics.
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MANAGERIAL ECONOMICS
Customers use price less when they can judge quality of a product.
Price becomes an important quality signal when customers can’t judge quality; price is used
to say something about a product.
Price Discrimination Pricing
Charging a different price for the same good/service in different markets
Requires each market to be impenetrable
Requires different price elasticity of demand in each market
Prices for rail travel differ for the same journey at different times of the day
Penetration Pricing
Price set to ‘penetrate the market’
‘Low’ price to secure high volumes
Typical in mass market products chocolate bars, food stuffs, household goods, etc.
Suitable for products with long anticipated life cycles
May be useful if launching into a new market
Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and
Deeply.
Attract a Large Number of Buyers and Win a Larger Market Share.
Market must be highly price-sensitive so a low price produces more market growth.
Production/ distribution costs must fall as sales volume increases.
Must keep out competition & maintain its low price position or benefits may only be
temporary
Price Changes
Price Cuts
cutting the price of merchandise to one lower than the usual or advertised price. price cutting.
cut - the act of reducing the amount or number; "the mayor proposed extensive cuts in the
city budget"
Why?
Excess Capacity
Falling Market Share
Dominate Market Through Lower Costs
Price Increase
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MANAGERIAL ECONOMICS
The increasing of the price of a product or service due to following reason:
Cost Inflation
Over demand: Company Can’t Supply All Customer’s Needs
Reaction to Price Changes
Negative perceptions of Price Cuts Are Seen by Buyers As:
Being replaced by new models
Current models are not selling well
Company is in financial trouble
Quality has been reduced
Price comes down further
Positive perceptions of Price Cuts Are Seen by Buyers As:
The item is in demand and will be unobtainable unless bought soon
The product in an unusually good value

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Pricing Strategies Price The amount of money expected, required, or given in payment for something. Price is the money, good, or service exchanged for the ownership or use of a good or service. The various names of price are the following: Another Name of Price - Tuition Interest Taxes Subscriptions Royalty Rent Fare Fee Retainer Toll Salary Wage Commission Honorarium Dues Commodity Purchased - Education Use of money Government service Regular receipt of a periodical Use of copy right Use of asset Taxi or bus ride Services of a physician Lawyer’s services over a period of time - - - Long distance call or travel on some highways Services of an executive or a white collar worker Services of a blue collar worker Salesperson’s services Guest speaker’s services Membership in a union or club Pricing Defined Pricing may be defined as those activities involved in the determination of the price at which products that will be offered for sale considering the various objectives of the firm. Pricing Objectives Before setting prices, the firm's pricing objectives must first be determined. Pricing objectives may consist or any of the following: 1. profit-oriented objectives 2. sales-oriented objectives; or 3. status quo-oriented objectives. Pricing Strategies A business can use a variety of pricing strategies when selling a product or service. The Price can be set to maximize profitability for each unit sold or from the market overall. It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. Businesses may benefit from lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market. Finding the right pricing strategy is an important element in running a successful business. Pricing Strategy Objectives • Long Run Profits • Short Run Profits • Increase Sales Volume • Company Growth • Match Competitors Price • Create Interest & Excitement about the Product • Discourage Competitors from cutting Price • Social, Ethical & Ideological Objectives • Discourage New Entrants • Survival Decisions in Pricing Strategy • Fixed & Variable Cost • Competition • Company Objectives • Proposed Positioning Strategies • Target Group & Willingness to Pay • External Market Demand • Internal Factors; Product Cost & Objectives of Company Pricing Strategy for Challenging Economic Times • Pricing is a market consideration, not a cost consideration. • Understand your customers’ primary goals. Be clear on what the customer wants first, then set pricing and bundling decisions. • Consider bundling products or services together. Always bundle a low- and high-valued product together. This will create higher sales and greater profitability. • Understand your value proposition. Have a clear understanding of if and how your product or service is differentiated from the competition. • Know where you are on the scale of "innovative-to-commoditized." • Build the customers’ perception of value. Constantly build on customer perception. The more subtle the differentiation of the product or service, the more often customers need to be reminded of the value of your product or service. Factors Affecting Pricing • Organizational and Marketing Objectives • Pricing Objectives • Cost • Other Marketing Mix Variables MANAGERIAL ECONOMICS Pricing Strategies • Channel Member Expectation • Customer Interpretation and Response • Competition • Legal and Regulatory Issues Pricing Strategies ⎯ Market Skimming Pricing ▪ High Price low volume ▪ Skim the Profit from the Market ▪ Suitable for the products that have short life cycle or which will face competition at some point in future. ▪ Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market. ▪ Results in Fewer, But More Profitable Sales. ⎯ Use Under These Conditions: ▪ Product’s quality and image must support its higher price. ▪ Costs can’t be so high that they cancel the advantage of charging more. ▪ Competitors shouldn’t be able to enter market easily and undercut the high price ➢ Examples; Play Station, Digital Technology, Apple Products etc. ⎯ Value Pricing ▪ Based on consumer Perception. ▪ Price charged according to the Customers Perception. ▪ Price set by the company as per the perceived value. ➢ Example; Status Products/ Exclusive Products. ⎯ Loss Leader Pricing ▪ Goods/services deliberately sold below cost to encourage sales elsewhere ▪ Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things ▪ Purchases of other items more than covers ‘loss’ on item sold ➢ e.g. ‘Free’ mobile phone when taking on contract package ⎯ Psychological Pricing ▪ Used to play on consumer perceptions ▪ Classic example - £9.99 instead of £10.99! ▪ Links with value pricing – high value goods priced according to what consumers THINK should be the price ▪ MANAGERIAL ECONOMICS Considers the psychology of prices and not simply the economics. Pricing Strategies ▪ Customers use price less when they can judge quality of a product. ▪ Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product. ⎯ Price Discrimination Pricing ▪ Charging a different price for the same good/service in different markets ▪ Requires each market to be impenetrable ▪ Requires different price elasticity of demand in each market ▪ Prices for rail travel differ for the same journey at different times of the day ⎯ Penetration Pricing ▪ Price set to ‘penetrate the market’ ▪ ‘Low’ price to secure high volumes ▪ Typical in mass market products – chocolate bars, food stuffs, household goods, etc. ▪ Suitable for products with long anticipated life cycles ▪ May be useful if launching into a new market ▪ Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply. ▪ Attract a Large Number of Buyers and Win a Larger Market Share. ▪ Market must be highly price-sensitive so a low price produces more market growth. ▪ Production/ distribution costs must fall as sales volume increases. ▪ Must keep out competition & maintain its low price position or benefits may only be temporary Price Changes ⎯ Price Cuts ▪ cutting the price of merchandise to one lower than the usual or advertised price. price cutting. cut - the act of reducing the amount or number; "the mayor proposed extensive cuts in the city budget" ➢ Why? • Excess Capacity • Falling Market Share • Dominate Market Through Lower Costs ⎯ Price Increase MANAGERIAL ECONOMICS Pricing Strategies ▪ The increasing of the price of a product or service due to following reason: ➢ Cost Inflation ➢ Over demand: Company Can’t Supply All Customer’s Needs Reaction to Price Changes ⎯ Negative perceptions of Price Cuts Are Seen by Buyers As: ▪ Being replaced by new models ▪ Current models are not selling well ▪ Company is in financial trouble ▪ Quality has been reduced ▪ Price comes down further ⎯ Positive perceptions of Price Cuts Are Seen by Buyers As: ▪ The item is in demand and will be unobtainable unless bought soon ▪ The product in an unusually good value MANAGERIAL ECONOMICS Pricing Strategies Name: Description: ...
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