Lecture 5: Pricing Strategy

Factors Influencing Pricing Decisions

Several factors influence pricing decisions, including:

 Cost: The total cost of producing and delivering the product.

 Demand: Customer willingness and ability to pay.
 Competition: Prices of competing products in the market.
 Perceived Value: Customer perception of the product’s value.
 Market Conditions: Economic trends, regulations, and market dynamics.
 Company Objectives: Goals such as maximizing profit, gaining market share, or
achieving a desired brand image.

Pricing Objectives and Strategies

Pricing objectives guide strategy development:

 Profit Maximization: Setting prices to achieve the highest possible profit.

 Market Penetration: Setting low prices to gain market share quickly.
 Market Skimming: Setting high prices initially to target early adopters and then
gradually lowering prices.
 Survival: Setting prices to cover costs and stay in business during tough times.
 Product-Quality Leadership: Setting premium prices to reflect high quality and
brand status.

Cost-Based, Value-Based, and Competition-Based Pricing

 Cost-Based Pricing: Setting prices based on production costs plus a markup for
profit.
 Value-Based Pricing: Setting prices based on the perceived value to the customer
rather than cost.
 Competition-Based Pricing: Setting prices based on competitors’ pricing strategies.

Psychological Pricing Techniques

Psychological pricing influences customer perception and behavior:

 Charm Pricing: Using prices ending in 9 or 99 to make products seem cheaper (e.g.,
$9.99).
 Prestige Pricing: Setting high prices to create an image of quality and exclusivity.
 Bundle Pricing: Offering products in a bundle at a reduced price compared to buying
individually.
 Anchoring: Placing a higher-priced item next to a standard item to make the latter
seem more affordable.

Dynamic and International Pricing

 Dynamic Pricing: Adjusting prices based on real-time supply and demand
conditions.
 International Pricing: Setting prices for different international markets considering
factors like local purchasing power, competition, and regulations.