Unit 4.5b - Pricing

Price

• Self-explanatory – the price of the product
• Must consider a product’s costs, how much customers are willing to pay, profit targets, competition, etc.

Pricing strategies 

• Cost-plus pricing
  • Adding a percentage or predetermined amount (markup) to the average cost per unit to set the selling price
  • Ensures a product will produce a contribution
• Competition-based pricing
  • Price leadership
    • Set by the market leader and other firms simply follow
  • Predatory pricing
    • Temporary reduction in price to drive away competition
    • Can be as aggressive as to sell below cost/at a loss
  • Going-rate pricing
    • Simply pricing at about the average price level of most products in the market
• Market-led pricing
  • Penetration pricing
    • Newcomers set their prices low to entice people to buy
    • Price changes from low to high
    • Risk: lower prices = lower reputation
  • Price/market skimming
    • Get a feel for what the market is like, set the price high, then as you understand the market better your prices will slowly decrease
    • Prices changes from high to low
  • Price discrimination
    • The price of a product varies per country, which depends on the market; however, the products should not be easily traded
    • Results to the government applying taxes/tariffs
  • Loss of leadership
    • Products are sold at a loss, but regain their losses through their other products
    • e.g. PS3 sold at a loss, but profits are gained through games
  • Psychological pricing
    • Some numbers are more appealing
  • Promotional pricing
    • Offer discounts, rebates, promotions, etc.
    • Assure that your market likes discounts, otherwise, there will be no reason in offering the promotions