http://study.com/academy/lesson/pricing-strategy-in-marketing-definition-types-examples.html
Have you ever noticed the price of the goods while going to the supermarket? have you ever thought about what`s the differences between $ 0.99 and $ 1.00? Have you ever confused about why there are always many products are in discount from day to day?
In general, it`s hard for boys spending a lot of time in shopping, but I get the chance to that cause I have a best female friend whose interest is going to the supermarket even though she does not want to buy anything else. For me, I just go with her without purchase anything as well. Therefore, I always check the price label of different kind of goods and think about what kind of pricing strategy the marketer has done to attract customers.
As we known, price is the most important factor in determining profit and normally countless businesses fail to get their pricing strategy right. The price that one company charges for tis products or services is a major way to communicate the firm’s value in the marketplace.
Is there any significant effect by slightly changing the price?
The answer might be yes. For instance, if you might get a large percentage possible increase of your operating profit by increasing 1% of your price gain. However, this profit can not be achieved by simply reducing 1% variable or fixed costs. but an increase in price goes right to the bottom line.
What kinds of pricing strategies normally utilized in price setting?
There are some common pricing strategies as shown blow:
- Penetration Pricing
- Optional Pricing
- Premium Pricing
- Competition Pricing
- Value Pricing
- Bundle Pricing
- Skimming Pricing
I prefer skim pricing most. the practice of selling a product at a high price, usually during the introduction of a new product when the demand for it is relatively inelastic. This approach is used to generate substantial profits during the first months of the release of a product, usually so that a company can recoup its investment in the product. However, by engaging in price skimming, a company is potentially sacrificing much higher unit sales that it could garner at a lower price point.
For example, ABC International has developed a global positioning system that can lock onto GPS satellite signals even from several feet underwater. This is a substantial improvement over existing technology, so ABC feels justified in pricing the product at $1,000, even though it only costs $150 to construct. ABC holds this price point for the first six months, while it earns back the $1 million development cost of the product, and then drops the price to $300 to deter competitors from entering the market.
Which pricing strategies you prefer best? How do they working in pricing network to increase companies` profits? Can you share you knowledge with us, lets have a discuss.
Marketing Management Blog T1 2015 
This strategy is used by many a companies especially if they are bringing out innovative products and is usually successful as long as the novelty of product lasts. What ABC did in slashing the price drastically was a good move because once the imitation products of equally good quality start arriving in the market, the novel products loose their share. Why would consumer pay high price unless the primary brand has a premium tag attached or is highly reputed?
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Yes, you are right. as a media company, ABC used this strategy to extend its profits as the news or TV shows migth change fast. Once there comes similar programs, the market share might decrese quickly. but how about other companies with monopolistic technical products in the market, such as Apple. they still use this strategy cause its products are unique.
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ABC did a good price strategy. When the product entered the market, which was innovative product. There was no substitute goods！The price was controlled by the ABC flexibly. If customers want to buy, they have no chance to compare with others and have to buy it. After few months, there are some imitation products entering the market. ABC already drop the price to $300. It’s a good idea to deter the competitors from the entering the market. For the profit maximization, I think ABC achieved this point, because the initial price helps ABC make back the investigation as soon as possible. After competitors entered the market, ABC dropped the price, it helps them attract customers to make 100%profits($150)and against competitors.
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yah, exactly ABC has done a fantastic job on its price strategy. as you mention, when other competitors entered the market, ABC will drop the price. Do you think the price will keep going down as the number of competitors increase cause sometime company might remain their products even there comes some losses on them.
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Its not always true that a firm will gain huge percentage of profit with only 1% increase in price or reduction in variable cost, it depends upon the elasticity of the product. If a product is inelastic it would not respond to price change.
I prefer competition pricing because it reflect the true demand and supply of the market, therefore will push the price of the product to market equilibrium.
Premium pricing is the second best choice because even though the manufacturer is charging a premium in its product but he is confident of the quality/value/rarity he is giving in its product thats why he is charging premium.
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yes. it depends on the elasticity of products. as we know, elasticity = %change in Quantity/ %change of price. for inelastic products, changes in costs might not contribute any profits to companies.
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Interesting article! When discussing price strategies we have to distinguish between companies that sell directly to consumers (B2C) and those that work with distributors (B2B). B2C companies can set prices as high as they like, but B2B companies can’t necessarily do that.
This can create challenges when you think of a situation where a producer of prestige/luxury products doesn’t want their distributors to cut their price and have no legal means to dictate the price. Then, the solution is to discuss the advantages (maybe a better margin for the distributor) of using the suggested retail price with the distributor.
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True, normally, there are base lane for companies set their price. for B2B, the price normally set up by half and half so that both the producers and retailers can gather enough profits. but for B2C, producer or service providers might set the price which extend their benefit as large as possible
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The different pricing strategies would probably need to be fitted with the product the company is aiming to sell and how they aim to position the product in the market place. As a consumer I would relate best to the competition pricing, value pricing and bundle pricing – the latter because you feel at least like you are getting more for your money. In the supermarket I do react to price changes on products – I do have favourite brands but will react and choose another if the price suddenly goes up significantly. But I will pay more for products when I can be reasonably sure they are “Australian made” or made with produce grown in Australia – I like to be able to support the Aussie farmers.
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yah, pricing strategies are different from products to products and companies to companies. for some technique companies, such as Apple, SunSung. once the published new products, the price wouldnot be low as the high cost of R&D. but for a new products without initial competition, companies normally use skimming strategy. as the competitors creeping up, they might use elastic pricing strategy to determine how to move the price.
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Interesting Point of View. The pricing elasticity can obviously impact the number of sales. I think one of the other interesting points in a situation like this is the use of the price to create an aura surrounding the product. Humans are naturally inclined to be aspirational and as such it seems to me that some customers would be attracted by their ability to afford the higher introduction price for the new “fad” product
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yes, elasticity is a significant relationship between supply and demand. more companies would move their strategies to elastic pricing strategy to decide how to change the price to increase the demand. in theory, the decrease of price would lead increase of demand. but it might cause a sharp decrease as well once your customers think your products are low-priced.
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the example chosen here is for a new product , what if the product existed in the market for a while and have allot of substitutes ?
I think Competitive Pricing is best specially when the products are already there in the market .
Competitive Pricing is often by businesses selling similar products and if you put the product in a higher price consumers would look for a substitute specially in this days economy down turn.
One advantage of competitive-based pricing is that it avoids price competition that can damage the company.Potential disadvantages include that businesses may need to engage in other tactics to engage customers (if the price is not enough of an incentive). So yes I prefer Competitive pricing strategy .
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yes.for the products that have existed in market, competitive pricing is a good choice.howerver, there are also some limitation for competitve pricing.
The primary disadvantage to the company that engages in competition based pricing is that they are not pricing based on the value delivered to customers or–less optimally–on the basis of their costs. Thus, they are unable to effective manage revenue to a target, creating a chaotic income stream, with all the disruptions in management and customer experience that may entail.
Additionally, competition based pricing is an efficient way to drive profit out of the entire industry. Once a single company responds to a competitor with a price change, it is very difficult for other companies not to respond with price changes of their own. Almost always, those price changes are discounts, and become a race to the bottom.
Thus, that pricing strategy is not only disruptive to the company, its employees and customers, but also the industry overall.
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HI in this blog I was confused what to reply .but when after rereading I am sharing my opinion . Skimming pricing strategy has worked best for the well-known brands like Apple, Samsung, Microsoft, Sony etc. For new entrants it’s not good idea to start with skimming strategy, and for new entrant’s value and completion pricing will be good. It mainly depends on the product and environment where they are launching.
The willingness to pay by customers is encashed from these company, so only they use skimming strategy when launching new products.
And slightly changing the price based on some situations or events can slightly change in company’s revenue. But for customers if they price of commodity is more they try to search for alternatives and in low price daily use dairy and milk products they may use the same as it will be difference in very small decimals.
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for competitive strategy, it`s more suitable for the products that have been existed in the markets because it asks for a changing price to maxmize the profits. but for the elastic technicial products, skimming strategy might be ezsy for companies gather more benefits. but, for different prodcuts in different areas, companies hould combine pricing strategy and price elastcity to control the price movement and maxmize their profits.
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The pricing strategy , in my mind , totally depends on the product you’re pricing, If it’s one of a kind with no competition and you have a market demand you can use the skimming strategy ABC used, but if you are selling sugar or milk , where innovation is somehow limited , your price needs to be competitive.
If you have a strong brand, and your product is associated to it , like LV or Prada , use the premium pricing
If you are bundling products , for example your bundle of home phone, ADSL, Mobile Phone , PayTV and a bunch of add-ons , you should have a mixture of strategies used per product and as a bundle
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i think the strategy of skimming pricing would be more effective if the company has something unique in their products, otherwise it could be risky for setting up prices for a somewhat same product as the other company with relatively higher price.
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I think skimming pricing is the most interesting approach. Its interesting just knowing we all have friends in the first tier of customers. You know the ones, they must have the latest x-box, etc, etc! I think ABCs approach is very clever. However it is possible for companies to experience a backlash from customers who paid the top price initially. Like Apple did when it dropped its iphone in price by $200, 3 weeks after it was launched. It can be bad PR.
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I agree with the previous comment, but in terms of the Apple i phones and IT in general the speed of innovation would dictate a skimming strategy ?. If anyone has a background in IT marketing I would be interested in hearing from a knowledgable source (e.g. don’t know much about it myself)
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