1. Pricing Strategies
Mrs. Jayashree Vispute

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