Pricing Strategies

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Different Pricing Strategies

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

Market Skimming
High price, Low volumes
Skim the profit from the market
Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Value Pricing
Price set in accordance with customer perceptions about the value of the product/service Examples include status products/exclusive products

Loss Leader
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

Going Rate (Price Leadership)
In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market May follow pricing leads of rivals especially where those rivals have a clear dominance of market share Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets

Tender Pricing
Many contracts awarded on a tender basis
Firm (or firms) submit their price for carrying out the work Purchaser then chooses which represents best...
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