Types of Pricing Strategy

Pricing
Definition
Strategy
Here the organisation sets a low price to
Penetration increase sales and market share. Once
Pricing
market share has been captured the firm
may well then increase their price.
The organisation sets an initial high price
and then slowly lowers the price to make
Skimming
the product available to a wider market.
Pricing
The objective is to skim profits of the
market layer by layer.
Setting a price in comparison with
Competition competitors. Really a firm has three
Pricing
options and these are to price lower, price
the same or price higher

Example
A television satellite company sets a low price to get
subscribers then increases the price as their customer base
increases.
A games console company reduces the price of their console
over 5 years, charging a premium at launch and lowest price
near the end of its life cycle.

Some firms offer a price matching service to match what their

competitors are offering.

An example would be a DVD manufacturer offering different

DVD recorders with different features at different prices eg A
Product Line Pricing different products within the same HD and non HD version.. The greater the features and the
Pricing
product range at different price points.
benefit obtained the greater the consumer will pay. This form
of price discrimination assists the company in maximising
turnover and profits.
Premium
Pricing
Optional
Pricing
Cost Based
Pricing

The price set is high to reflect the

exclusiveness of the product.
The organisation sells optional extras along
with the product to maximise its turnover.
T
The firms takes into account the cost of
production and distribution, they then
decide on a mark up which they would like
for profit to come to their final pricing

An example of products using this strategy would be Harrods,

first class airline services, Porsche etc.
This strategy is used commonly within the car industry as i
found out when purchasing my car.
If a firm operates in a very volatile industry, where costs are
changing regularly no set price can be set, therefore the firm
will decide on their mark up to confirm their pricing decision.

Cost Plus
Pricing

decision.
Here the firm add a percentage to costs as For example it may cost 100 to produce a widget and the firm
profit margin to come to their final pricing add 20% as a profit margin so the selling price would be
decisions.
120.00

1.) Cost based pricing: this type of pricing strategies uses break even concept which means the point where the total cost = total revenue. Profit will be zero at
break even point. At level where the total revenue > total cost there is profit and where total revenue< total cost there is loss.
2.) Demand based pricing: it is of two types;
a) Skimming pricing: it means skim the market initially with high price and high profit, later settle down for the lower price. It means skim the cream initially
from the market.
b) Penetration pricing: it seeks to achieve high sale with low price. It is generally used when there are non luxury goods.
3.) Competition oriented pricing: in a competitive market the companies generally opt for this pricing strategy. It has three types.
a) Premium pricing: it means price above the competitors price.
b) Discount pricing: it means price below the competitors price.
c) Parity pricing: it means price equals to the competitors price.
4.) Value pricing: this method is used when the objective is not to recover the cost of the product but to judge the value of the product in the eyes of the
customer. Like homeshop 18.
5.) Product line pricing: in this case the company need not fix the price for each product rather they fix the price for the entire product line which results in
optimal sales through optimal profit.
6.) Sealed bid or tender pricing: this is suitable for those companies where institutional customers call the tenders from the companies. The best and lowest
price tender is accepted.
7.) Affordable or social welfare pricing: the pricing is done in such a way that all the segments of the market afford to buy and consume the product as per
their need. Like government subsidy help each segment of the consumer to buy the product at an affordable pricing.
8.) Differentiated pricing: in this case different price is charged by the company from the different segment. Like charging low price from the whole sellers and
high price from the retailers.
9.) Psychological pricing: many sellers use this technique of selling the product. Like 99 store.
10.) Target pricing: here the price is fixed at full cost + mark up.
11.) Loss leader: sometime firm sell multiple products, charge relatively low price on some popular product with the hope that customer who will buy this
product will also buy the other product of the firm.
12.) Cyclical pricing: in depression firm reduce the price of the product while in boom increases the price.
13.) Suggested pricing: in this case the manufacturer or whole seller suggests the retailer to charge this price from the customers.