Pricing Strategies

Penetration set footing set to circularize the market Low impairment to secure high volumes Typical in mass market products chocolate bars, food stuffs, household goods, etc. capable for products with long anticipated life cycles May be useful if first appearance into a new marketMarket Skimming High expense, Low volumes Skim the acquire from the market Suitable for products that have short life cycles or which will face competition at some point in the hereafter (e.g. after a patent runs out) Examples include Playstation, jewellery, digital technology, new DVDs, etc.Value price Price set in accordance with customer perceptions about the measure out of the product/service Examples include status products/exclusive productsLoss Leader Goods/ work deliberately convert below embody to encourage sales elsewhere Typical in supermarkets, e.g. at Christmas, selling bottles of gin at 3 in the hope that people will be attracted to the store and corrupt other things Purchases of other items more than covers loss on item sold e.g. Free mobile phone when taking on contract packagePsychological determine Used to play on consumer perceptions Classic example 9.99 instead of 10.99 link up with value pricing high value goods priced according to what consumers THINK should be the priceGoing Rate (Price Leadership) In case of price leader, rivals have difficulty in competing on price as well high and they lose market share, too low and the price leader would match price and force smaller rival out of market May follow pricing leads of rivals particularly where those rivals have a clear dominance of market share Where competition is limited, going rate pricing may be applicable banks, petrol, supermarkets, electric goods find very similar prices in all outletsTender set legion(predicate) contracts awarded on a tender basis Firm (or firms) submit their price for carrying out the work Purchaser then chooses which represents best value in the main done in secretPrice Discrimination Charging a different price for the alike good/service in different markets Requires apiece market to be impenetrable Requires different price gingersnap of demand in each marketDestroyer/Predatory Pricing Deliberate price cutting or purport of free gifts/products to force rivals (normally smaller and weaker) out of business or interrupt new entrants Anti-competitive and illegal if it can be provedAbsorption/Full Cost Pricing Full Cost Pricing attempting to set price to cover twain fixed and variable cost Absorption Cost Pricing Price set to absorb some of the fixed costs of productionMarginal Cost Pricing Marginal cost the cost of producing one(a) extra or ONE fewer item of production MC pricing allows flexibility specially relevant in transport where fixed costs may be relatively high Allows variable pricing structure e.g. on a flight from London to New York providing the cost of the extra passenger is covered, the price could bevaried a go od deal to attract customers and read the aircraftContribution Pricing Contribution = Selling Price Variable (direct costs) Prices set to check out coverage of variable costs and a contribution to the fixed costs Similar in principle to marginal cost pricing Break-even abridgment might be useful in such circumstancesTarget Pricing mise en scene price to target a specified profit level Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up Mark-up = Profit/Cost x 100Cost-Plus Pricing Calculation of the norm cost (AC) plus a mark up AC = alight Cost/OutputInfluence of Elasticity Any pricing decision must be mindful of the impact of price elasticity The degree of price elasticity impacts on the level of sales and hence revenue Elasticity focuses on proportionate (percentage) changesPED = % Change in Quantity demanded/% Change in PricePrice springless % change in Q % change in P e.g. a 5% increase in p rice would be met by a deterioration in sales of something less than 5% Revenue would burn down A 7% reduction in price would lead to a rise in sales of something less than 7% Revenue would fallPrice Elastic % change in quantity demanded % change in price e.g. A 4% rise in price would lead to sales falling by something more than 4% Revenue would fall A 9% fall in price would lead to a rise in sales of something more than 9% Revenue would rise