Macroeconomic 2

Topic

(Write a report on different types of product / service pricing strategies with examples from
industry)

Name: Khitab

Roll No: 1714

Assignment 2
 Pricing Strategy

Pricing is the process where a business sets a specific price for selling its products and services.
The price strategy maybe different time to time and it can be different for one product time to
time like we have different price for its product life cycle (Introduction, Growth, Maturity and
decline). This price is arrived at after considering a few things, such as how much it cost to
manufacture the products or services, the marketplace and conditions; the business brand, the
competition, the quality of the goods and services and how much they can get the products or
services for.

Types of Pricing Strategies

Demand Pricing

Demand pricing is also called demand-based pricing, or customer-based pricing. This pricing
method uses consumer demand of a product or service as the main element of setting a price
for a product or service. Also known as dynamic pricing. It is affected by consumer demand.
Which is based on the perceived value of a product or service. Includes price skimming, price
point, bundle pricing, penetration pricing, and other pricing strategies. The price of a product or
service increases as there is a likelihood that the price will also increase. Example if we look at
cinema ticket price it is fluctuate day by day according to the demand; like booking ticket one
month before will be cheaper than two days before the event.

Competitive Pricing

Also called the strategic pricing. Competitive pricing is a method that uses the prices set by
other businesses. More or less using competitor’s price to price your own products. Give or
take a little percentage to fit what your product or service is worth. For example, Honda has
adopted a competitive-based pricing approach in some parts of the world like Europe, a case in
point, Honda Jazz price was priced according to the price of other competitors in Europe such
as Peugeot, Renault, Ford, and Opel. The Honda Jazz was pieced at £13,800 which was very
close to the price of Honda’s competitors in Europe according to figure below.
Cost-Plus Pricing

This pricing strategy is a cost-based one for setting prices of products and services. When
setting the cost-plus price, you take the cost of the raw materials and the cost of production
and add them to the overhead costs of a product or service. To this total, you add a markup
percentage (this is your profit margin) and this total sum is your cost-plus price. The most
popular pricing strategy used within manufacturing is cost-based pricing. For example the car
manufacture calculate all its cost and after that they determine its product’s price.

Penetration Pricing

This pricing strategy uses low prices to enter a new market or to launch a new product or
service. This strategy is used to entice customers to patronize a certain product or service. It
also serves as a deterrent to the competition. To prevent them from entering the market with a
similar product, because they will have to make their prices lower. For example; As we know
entertainment industry is the most difficult spaces for new companies to enter. Established
brands like Netflix and Hulu have serious brand recognition and a loyal customer base. So,
when Disney+ decided to launch its own streaming platform at the end of 2019, it decided that
penetration pricing was its best shot. So Disney’s initial offering of $6.99 is well under its
customers’ willingness to pay(less than Netflix).

Price Skimming

Also called the skim-the-cream pricing. This pricing strategy is used by businesses with a strong
competitive advantage. They enter the market with high-priced products and services. This is to
gain the most revenue. To get an immediate return on production costs before other
businesses can come in with similar, cheaper products or services. Later in the product cycle,
the companies will gradually moderate their prices to accommodate customers with more
moderate price tastes. Example When IPhone 5 was launched in the market 4 years ago, it had
a premium price. Only few could actually afford an iPhone. Gradually, few years later, prices of
IPhone have been slashed down with time, such that, everyone could now afford an IPhone 5. A
few months ago, IPhone 6s was introduced in the market. Before that IPhone 6 was launched.
Both these IPhone were sold at very heavy price and in large quantities.

Economy Pricing

A very familiar pricing strategy with retailers and wholesalers. Economy pricing is a basic, low-
cost marketing method. It keeps the prices of goods low, targeting sales at a particular segment
of the market that is very price-sensitive. Example Apple uses a MAP (minimum advertised
price) retail strategy. MAP policies prohibit resellers or dealers from advertising a
manufacturer’s products below a certain minimum price. MAPs are usually enforced through
marketing subsidies offered by a manufacturer to its resellers.

Discount Pricing

A pricing strategy that offers products and services at a reduced price. Discount prices can come
in the form of seasonal discounts, loyalty rebates, et cetera. Example Till 2012, BMW was
extremely aggressive on volumes and had discounted some of its model like the X1 dramatically
and had introduced corporate editions of 3 Series, to buy the market.

Geographic Pricing

This pricing strategy is one where different prices are charged in different geographical
locations or markets for the exact same product or service. For example, instructional materials
sold in Canada will be sold at a cheaper rate in Cameroun due to the disparity in wages, the
economy, et cetera. Example BMW has successfully implemented 50 % increase in localization
of its products. Cars like BMW 1 Series, 3 Series, 3 Series Gran Turismo, X1, X3, X5, 5 Series as
well as 7 Series model that are locally produced will now be available at low cost because of
that the price Reduced up to 5 lac INR.

Price Bundling

Also known as product bundling. This is a strategy is used when two or more products or
services a priced together as a package, with a single price. These product bundles come in two
types: pure bundles are products or services that are sold and bought only as a package; and
mixed bundles, which are products or services that can be bought and sold as a package, or as
individual products. Usually, the bundle prices are less when the products or services are
bought separately.

For example, mobile phone retailers frequently bundle the prices of several products and
services together for their new customers. They offer the phone itself with a package that also
includes the 2-year phone plan, internet access, and phone charger. This bundle benefits the
customer because it provides them with all the tools they need for their phone all at once and it
benefits the mobile phone retailer because they are selling the customer supplementary
products and services other than just a phone.