Pricing Strategy
Pricing Strategy
• The type of pricing strategy you
choose for an organization can
often affect its market value.
• There are several pricing
strategies in the market which can
help attract customers, set
appropriate product or service
costs and grow the revenue of an
organisation.
• Knowing about pricing strategy
and its types can help choose one
that can effectively meet the
company and market
requirements to maximise profits
and growth successfully.
1. Premium Pricing
Premium pricing is the process of establishing
higher prices than most of the competitors in
the market. It helps create perceived value,
luxury and quality.
Companies that sell exclusive high-tech
products often use this pricing strategy, as
customers pay a premium price if they have a
positive brand perception.
When a company implements this market
strategy, it may charge more than its
production costs to get a high-profit margin.
It is essential to note that this strategy works
mostly when users perceive the product as a
premium one.
2. Penetration Pricing
• This is the process of establishing comparatively low prices to draw
customers' attention from high-priced competitors and earn sales.
• New businesses often use this marketing strategy while entering the
market. Initially, the company may charge low prices to reach new
customers.
• They may raise the prices once the new customers become loyal followers
of the brand.
• This strategy makes it easier to gain a market share. It can help increase
market share and sales volume, leading to lower production costs and faster
inventory turnover.
• Penetration pricing is often helpful for achieving short-term business goals,
but, depending on the business, it may not be sustainable for the long term
as it can attract bargain hunters and those with low customer loyalty.
3. Skimming
pricing / Price
Skimming
• Skimming pricing involves charging
maximum prices for new products and
reducing them gradually to maximise
profit and make up for production costs.
• The strategy can work well if you sell
products with varying life cycle lengths.
• Products often go out of trend after a
period, so you have limited time to gain
your profit in the initial stage of the
product life cycle.
• Price skimming allows businesses to
retain customer interest in the long
term,but may not always be an ideal
strategy for populous markets.
4. Psychological
pricing
• Psychological pricing is the process of
studying consumer buying patterns to
influence buyer decisions and make higher
value sales. These methods work well when
you have an intimate understanding of the
target market.
• Some psychological pricing techniques include
promoting offers such as buy-one-get-one-free
or setting the price to an odd figure instead of
a round number.
• Psychological pricing simplifies the decision-
making process for customers and can
increase sales as it allows you to get direct
customer attention.
• It is essential to maintain transparency while
using this method to ensure retaining loyal
customers.
5. Bundle
pricing
Bundle pricing is when you sell two
or more products or services at a
single price.
It is a great way to market products
to customers who may want to pay
extra for multiple products.
Beauty salons, cosmetics brands,
restaurants and retail stores often
use this pricing strategy to increase
sales as customers discover more
products with this strategy and end
up purchasing additional products.
6. High-
Low Pricing
High-low pricing can help you increase
revenue by attracting new customers by
advertising low-pricing products and later
displaying high-cost products.
To implement this strategy, you can evaluate
the prices and popularity of your products and
leverage low or high pricing to increase sales
during a slow period.
For example, if a certain product is in high
demand, you can charge a high price while
introducing it. Subsequently, as the demand
decreases, you can reduce the price in the
lower-selling months through discounts and
clearance sales.
This strategy typically relies heavily on sale
promotions and often requires significant
marketing efforts.
7.
Competitive
Pricing
In competitive pricing, you set the
product prices on par with all the other
competitor products available in the
market.
The prices may differ slightly from the
market rate but are ultimately within
the range of prices set by the other
companies. This strategy can help you
stay competitive if the company you
work for is in a saturated market .
Customers often compare the market
prices, so charging competitive or
slightly low prices can give you a
chance to gain more customers.
8. Cost-Plus Pricing
Some businesses use a cost-plus pricing strategy when their focus is to
recover the production cost of the product. This strategy involves
taking the amount invested and increasing it by adding a fixed
percentage.
For example, if you invested ₹100 in making the product and want to
make a profit of ₹100 on each sale, you can set a price of ₹200.
Retailers who sell physical products often use this strategy, as their
products offer greater value than the cost of creation.
The advantage of this type of pricing strategy is that as you set the
market price to a fixed rate for the products, the profits are more
predictable.
9. Dynamic
Pricing
Dynamic pricing, also known as demand
or surge pricing, matches the current
market demand.
It is a flexible strategy, used when the
prices keep fluctuating daily or even
hourly. Industries like airlines, hotels,
utility companies and event
management companies may use
dynamic pricing based on market trends.
It helps companies to shift prices to
match the customers' willingness to pay.
You can charge varying prices for
different user intents, to reduce
challenges at the time of purchase and
develop customer loyalty.
10. Captive-
Product
Pricing
This is a pricing strategy that considers
captive or secondary products along with
core or main products while determining
the price.
For example, if a printer is the core
product, printer ink is a captive product.
Companies put higher prices on captive
products, increasing the revenue margin as
compared to core products.
Captive-product pricing can increase
traffic flow from a core product and can
increase customer loyalty for a specific
brand. It is crucial to ensure that customers
see the value offered by the captive
product and find its quality satisfactory.
11. Geographical Pricing
Geographical pricing is the process of charging product prices
depending on geographical location or market.
With geographical pricing, you can set prices according to local
consumer interests, requirements and preferences.
While executing this strategy, it is important to conduct extensive
research about local region-specific taxation laws and have a
streamlined accounting process to ensure its success.
What Is Predatory Pricing?
• Predatory pricing refers to a pricing strategy that some organisations
may employ to gain a competitive advantage in a market.
• By removing its competition, an organisation is one step closer to
creating a monopoly, a powerful position of market dominance that
might allow it to control pricing and overrule laws of supply and
demand.
• Learning about this pricing strategy may help you identify and address
it in any industry.
“Predatory Pricing”, or “Below-Cost
Pricing”
• It refers to the practice of lowering prices to eliminate competition, increase
market share and establish a monopoly in a particular industry. Some
companies employ this strategy by temporarily setting a product's price to
below-manufacturing cost levels.
• They incur short-term revenue losses to gain more consumers, so other
companies in that industry can not compete and may leave the market.
• After this, they typically raise prices again.
• Below-cost pricing benefits consumers temporarily because they receive
products for lower prices, but companies rarely keep these prices low for very
long.
• Some companies, after reducing competition, raise prices to levels higher
than they were prior to market control. Customers are then at a disadvantage
because there may be fewer options available due to reduced competition.
Characteristics Of
Below-Cost
Pricing Strategies
• Here are a few characteristics of
below-cost pricing practices:
• Prevents new companies
from entering a market
• Creates advantages for a
specific company
• Manipulates markets
• Incurs profit reduction to
varying degrees
• Discourages competition
What are Pricing
Tools?
Pricing tools are software that helps a
company determine the pricing option
that best reflects a product's value.
These tools analyse, manage, define,
predict and optimise the appropriate
pricing strategy.
These tools help companies make
long-term and short-term decisions
that affect their bottom line. Here are
some reasons these tools are
essential:
Advantages:
Helps stay competitive in the market
In a hyper-competitive market, acing the product's
pricing is the key to success because the pricing
decides whether a product stays or gets removed from
the shelf.
A pricing software helps understand the demand and
price elasticity to make informed pricing decisions.
These tools give information about competing price
points in a particular market.
Enhances knowledge of the
buyer persona
It is challenging to reach a price
without understanding the buyer's
persona.
A pricing software helps companies
understand the buyer persona,
which increases revenue.
Often, a company relies on these
tools to understand the customer's
willingness to pay, a feature they like
and dislike about a product and
where they can find potential
customers.
Maximises Profit Margins
Without assessing the value of a
product, a company might short-sell
or compromise on the profit
margins.
Pricing software help companies
understand the product's actual
value and create a price point.
It lets you justify the higher pricing,
especially if it offers greater value
than the competitor's product.
• When a business launches a new product or
service that has minimal competition in the
What Is industry, they might adopt certain pricing
and marketing practices, like price skimming,
Price to maximise profits in the short-term.
Skimming • Price skimming can help a company recover
some of its initial production costs and
?A improve the overall return of its investment.
• Understanding what price skimming is, how it
Definitive works and what its advantages are can help
business operators choose whether to use
Guide this method for their own product [Link]
With this article, we answer the question, "What is
price skimming?" by exploring the definition
Examples of the term, showing some of the pros and
cons of this method and providing various
examples of the method in practice.
Price skimming is a pricing method
some businesses use to maximise initial
profits following a product or service
launch. Initially, the business offers the
product or service at a higher price to
What Is make as much on the product launch as
possible, before gradually reducing the
Price cost over time to make it a more
Skimmin attractive and affordable option for
customers.
g? For example, an electronics company
might offer its latest gaming console for
₹500 at launch, reducing the price over
the next year to ₹399. Since customers
anticipated the launch, they can be
more willing to pay the higher price.
• Pros
• Maximising initial sales
• Generating interest in the product and
Pros And business
• Creating a FOMO situation for
Cons Of customers
• Building a stronger brand image
Price • Cons
Skimmin • Short-term benefits
• Potential for customer mistrust
g • Competitor advantages
• Ineffectiveness for follow-up products
Positive price skimming
This example shows how a company might
use price skimming for an initial product
launch with positive results:Mountain Man
Examples Clothing Co. launches its new line of hiking
boots with Rubber Ace soles, a patented
Of Price technology unique to the company. Upon
launch, they offer each pair for ₹150,
Skimmin including several benefits for the first 1,000
customers that purchase a pair of these
g limited edition hiking boots. The company
created multiple marketing campaigns prior to
launch, and analytics data indicated that
there was significant anticipation for the new
technology. After six weeks of consistent
sales, the company reduces the price by ₹50,
encouraging the next wave of customers to
purchase a pair.
This example shows how price skimming
might negatively affect a product's
performance on launch:Duraj Cosmetics
launched 15 different makeup palettes in
the previous year, each using the price
Negative skimming method to maximise initial sales.
The first three palettes generated significant
price sales, but the company received many
complaints about how each palette seemed
skimmin too similar to the previous launch. In
November, the company launches its 16th
g palette at a significantly higher price than
the previous renditions, resulting in minimal
sales because of price saturation and no
improvements to justify the [Link] note
that none of the companies, institutions or
organisations mentioned in this article are
associated with Indeed.
• Value-based pricing is a strategy companies use
to determine the price of their products. It sets
prices based on a customer's perceived value of
What Is a product or service. Learning about this pricing
model and its benefits can help you use it in the
Value- company you work for and improve brand
perception.
Based What Is Value-Based Pricing?
Pricing? Value-based pricing is a customer-centred strategy
companies use to determine the price of their
(Benefits products or services by assessing how much
customers think they are worth. This strategy
focuses on how consumers assess a product or
And How service rather than the cost of producing or
marketing it. It is an effective method for
To Use It) increasing sales and customer loyalty. It is found
in markets that offer experiences or improve a
consumer's self-image, such as the automotive
industry.
• To use a value-based strategy, a company
generally possesses these three qualities:
Offers unique products: A company wants to
differentiate itself from its competition and
offer consumers something exclusive. This
increases the desire for the product and
Value- encourages consumers to value it more.
Based • Creates a customer-based
product: Developing a customer-based
Qualities product means customising the goods or
services to meet customers' needs and desires.
A company can develop this type of product by
adding customer-requested features.
• Provides high-quality products and
services: The quality of a product is important
because high-quality products hold a higher
value for many people. High-quality items and
services can also help a company be unique.
There are good reasons for engaging in this pricing
method, including:
Achieving customer satisfaction
The By pricing products and services according to how
customers value them, a company can increase
Importan customer satisfaction. When consumers pay a fair
price for a high-quality item, they are more likely to
be happy with their purchase. It also shows
ce Of consumers the company values their opinions.
Value-
Improving brand perception
Establishing a good reputation for the company
Based brand is important for making sales and creating
loyal customers. This pricing strategy helps build a
brand with a positive reputation because customers
Pricing gain satisfaction from purchasing the products or
services and are likely to buy again. Improving the
perception of a brand is a good marketing tactic that
attracts new customers and helps companies appear
distinctive in the market.
Building better customer
relationships
Another benefit of this pricing
strategy is that a company can build
more meaningful customer
relationships. Getting a product for
the price they want to pay
encourages customers to become
loyal to the brand. Adding customer-
requested features to products or
services also helps build strong
customer relationships. Ultimately,
positive customer relationships lead
to increased sales and greater
profits.
Increasing sales
When a company prices products
according to how customers value
them, it can sell more. Price is a
primary concern when making a
purchasing decision, but this pricing
strategy helps remove this obstacle
for consumers. In combination with
the other benefits of this strategy,
such as high customer satisfaction
and strong customer relationships,
companies can see increased sales.
