Pricing Strategy ...
There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use.
Contents
1 Competition-based pricing
2 Cost-plus pricing
3 Creaming or skimming
4 Limit pricing
5 Loss leader
6 Market-oriented pricing
7 Penetration pricing
8 Price discrimination
9 Premium pricing
10 Predatory pricing
11 Contribution margin-based pricing
12 Psychological pricing
13 Dynamic pricing
14 Price leadership
15 Target pricing
16 Absorption pricing
17 Marginal-cost pricing
18 References
[edit] Competition-based pricing
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of competitive product:
Products have long distinctiveness from competitor 's product. Here we can assume
The product has low price elasticity.
The product has low cross elasticity.
The demand of the product will rise.
Products have perishable distinctiveness from competitor 's product, assuming the product features are medium distinctiveness.
Products have little distinctiveness from competitor 's product. assuming that:
The product has high price elasticity.
The product has some cross elasticity.
No expectation that demand of the product will rise.
The pricing is done based on these three factors.
[edit] Cost-plus pricing
Main article: cost-plus pricing
Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
Price = Cost of Production + Margin of Profit.
[edit] Creaming or skimming
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market.
Contents
1 Competition-based pricing
2 Cost-plus pricing
3 Creaming or skimming
4 Limit pricing
5 Loss leader
6 Market-oriented pricing
7 Penetration pricing
8 Price discrimination
9 Premium pricing
10 Predatory pricing
11 Contribution margin-based pricing
12 Psychological pricing
13 Dynamic pricing
14 Price leadership
15 Target pricing
16 Absorption pricing
17 Marginal-cost pricing
18 References
[edit] Competition-based pricing
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of competitive product:
Products have long distinctiveness from competitor 's product. Here we can assume
The product has low price elasticity.
The product has low cross elasticity.
The demand of the product will rise.
Products have perishable distinctiveness from competitor 's product, assuming the product features are medium distinctiveness.
Products have little distinctiveness from competitor 's product. assuming that:
The product has high price elasticity.
The product has some cross elasticity.
No expectation that demand of the product will rise.
The pricing is done based on these three factors.
[edit] Cost-plus pricing
Main article: cost-plus pricing
Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
Price = Cost of Production + Margin of Profit.
[edit] Creaming or skimming
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market.
References: 1.^ Kent B. Monroe, [The Pricing Strategy Audit]http://www.cambridgestrategy.com/content/pricing_strategy_audit.php, 2003, Cambridge Strategy Publications, p.40 2.^ Kent B. Monroe, [The Pricing Strategy Audit]http://www.cambridgestrategy.com/content/pricing_strategy_audit.php, 2003, Cambridge Strategy Publications, p.41