pricing strategy Flashcards
Why is pricing important?
Can affect buying decisions and influence product image
As a seller, if the selling price is lesser than the buying price, cannot earn profit
Pricing approaches
- penetration pricing
- skimming pricing
- follow-the-leader pricing
explain Penetration pricing
setting selling price lower than normal prices to speed up market acceptance and increasing share of market
Conditions needed for penetration strategy to work:
As sales increase, unit cost must decrease
Demand for the product must be price elastic to attract customers to buy more
explain Skimming pricing
setting high prices for a limited period before reducing them to more competitive levels (eg. Apple phones)
types of pricing tools
- optional product pricing 2. captive product pricing 3. product-bundle pricing 4. psychological pricing 5. promotional pricing
optional product pricing
the pricing of optional or accessory products along with a main product
eg. ice cream with extra toppings
captive product pricing
setting “low” price for main product but mark-up on the accessories
Eg. Printers are often sold at a affordable price but high price for ink catridges and papers
product-bundle pricing
offers package deal so is cheaper to buy package than the items individually
eg. mcd set meals, lens and frame
psychological pricing
considers how our mind processes prices, high price means good quality
eg. pricing products $199 instead of $200 to make it seem cheaper
promotional pricing
pricing products below regular prices for limited period of time to increase short term sales
eg. festive seasons (cny, christmas)
loss leaders: choosing a few items and price at a loss in hopes of attracting customers
explain follow-the-leader pricing
setting prices similar to competitors to allow new players to blend and be accepted by existing players as prices are generally the same
conditions for skimming pricing to work
- price must be justified by the product quality
- little to no competition
