2. 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
Results in a Larger Market Share
3. 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)
Results in Fewer, More Profitable Sales.
Eg. Playstation, jewellery, digital technology, new DVDs, etc.
4. Value Pricing
Price set in accordance
with customer
perceptions about the
value of the
product/service
Examples include status
products/exclusive
products Companies may be able to set prices
according to perceived value.
5. Loss Leader
Goods/services deliberately sold below cost to
encourage sales elsewhere
Typical in supermarkets, e.g. at Diwali, selling
scented soap at Rs. 13 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
6. Psychological Pricing
Used to play on consumer perceptions
Classic example – Rs.999 instead of Rs.1000!
Links with value pricing – high value goods priced
according to what consumers THINK should be the
price
7. 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, supermarket products, electrical
goods – find very similar prices in all outlets
8. 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 value
Mostly done in secret
9. Price Discrimination
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
10. Destroyer/Predatory Pricing
Deliberate price cutting or offer of ‘free
gifts/products’ to force rivals (normally smaller
and weaker) out of business or prevent new
entrants
Anti-competitive and illegal if it can be proved
11. Contribution Pricing
Contribution = Selling Price – Variable (direct costs)
Prices set to ensure coverage of variable costs and a
‘contribution’ to the fixed costs
Similar in principle to marginal cost pricing
Break-even analysis might be useful in such
circumstances
12. Market Skimming Market Penetration
>Setting a High
Price for a New
Product to
Maximize
Revenues from the
Target Market.
>Results in Fewer,
More Profitable
Sales.
> Setting a Low Price
for a New Product
in Order to Attract
a Large Number of
Buyers.
>Results in a Larger
Market Share.
13. Pricing strategies
Premium pricing
Uses a high price, but gives a good product/service exchange
e.g. Concorde, The Ritz Hotel
Penetration pricing
offers low price to gain market share - then increases price
e.g. France Telecom - to attract new corporate clients (or
Telewest cable)
Economy pricing
placed at ‘no frills’, low price
e.g. Soups, spaghetti, beans - ‘economy’ brands
14. Price skimming
where prices are high - usually during introduction
e.g new albums or films on release
ultimately prices will reduce to the ‘parity’
Psychological pricing
to get a customer to respond on an emotional, rather than
rational basis
.e.g 99 not 100 ‘price point perspective
Product line pricing
rationale of a product range
e.g. DairyMilk 20, three-pack 60, chotu-size 2
Pricing variations
‘off-peak’ pricing, early booking discounts,etc
e.g offering a ‘cash back’ incentive for expensive goods
15. Optional product-pricing
e.g. optional extras - BMW famously under-equipped
Captive product pricing
products that complement others
e.g Gillette razors (low price) and blades (high price)
Product-bundle pricing
sellers combine several products at the same price
e.g software, books, CDs.
Promotional pricing
BOGOF e.g. toothpaste, soups, etc
16. Geographical pricing
different prices for customers in different parts of the
world
e.g.Include shipping costs, or place on PLC
Value pricing
usually during difficult economic conditions
e.g. Value menus at McDonalds