Pricing Strategy Definition Example

Penetration pricing:

Here the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price.

A television satellite company sets a low price to get subscribers then increases the price as their customer base increases.

Skimming pricing:

The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.

A games console company reduces the price of their console over 5 years, charging a premium at launch and lowest price near the end of its life cycle.

Competition pricing

Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher.

Some firms offer a price matching service to match what their competitors are offering.

Product Line Pricing:

Pricing different products within the same product range at different price points. E.g.T-Shirt Banana Republic (Very Expensive)T-Shirt by GAP is just (Expensive)T-Shirt by Old Navy (Economical)

DVD manufacturer offering different DVD recorders with different features at different prices eg A HD and non HD version. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximizing turnover and profits.

Optional pricing:The organization sells optional extras along with the product to maximize its turnover.

Extra accessories with mobile i.e. pouch, Bluetooth, headphones, smart tunes, lighting etc

Captive ProductPricing

Where products have complements, companies will charge a premium price where the consumer is captured. (Interdependent products)

A razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

By-ProductPricing

Setting a price for by-products in order to make the main product price competitive.

B.D Syringe, Cherat Cement wastage, Faisalabad Textile---waste clothes

Psychological Pricing

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis.

999 R.s by BATA not 1000.

Reference Prices Prices that buyer carry in their mind Past experience, imaginary pricing

Promotional Pricing

Pricing to promote a product is a very common application.

Buy one get one free.Stickers on car (McDonalds)Dunkin Donut and Ufone etc.

Geographical Pricing

Geographical pricing is evident where there are variations in price in different parts of the world.

Where shipping costs increase price. E.g. Prices of food commodities in hilly areas.

Zone Delivered Divide the country in different zones and Prices of food commodities in

Pricingfix the prices on the basis of distance, the more distant the zone, the higher the price due to high transportation charges.

Peshawar and the prices of same food commodities in hilly areas.

Uniform-delivered Pricing

Geographically pricing strategy, same prices throughout the country.

Postage stamp pricing, Pepsi etc.

Basing PointPricing

Geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost that city to the customer.

Alto Cars 525,000 R.s (Prices are only for Karachi).If someone buys this car in Peshawar or Lahore, the customers will pay the freight cost also i.e. Karachi to Peshawar

Free on board (FOB-origin)Pricing

Geographical Pricing Strategy in which goods are placed free on board a carrier. The customers pay the freight from the factory to the destination.

CIF--- Carriage Insurance Freight

Alto Cars 525,000 R.s (Prices are only for Karachi).

Freight- Absorption Pricing

Geographical pricing strategy, in which seller absorb all or part of the freight charges in order to get desired business.

Freight pricing is used for market penetration and to hold on to increasingly competitive markets.

Segmented Pricing

Different price for different segments In buses (Students and senior citizens pay 50% of rent)

Dynamic Pricing

Adjusting prices continually to meet the needs of individual customer and situations. Flexible pricing, depends on demand and supply.

Price of Pepsi in winter and summer, Dell uses real dynamic pricing to achieve real time balancing of supply and demand for computers.

Product BundlePricing:

The organization bundles a group of products at a reduced price.

Buy one get one free, Give away etc

Value Pricing

Approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales

Value meals at McDonalds.

Quantity discount - offered to customers who purchase in large quantities. Cumulative quantity discount - a discount that increases as the cumulative quantity

increases. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders.

Seasonal discount - based on the time that the purchase is made and designed to reduce seasonal variation in sales. For example, the travel industry offers much lower off-season rates. Such discounts do not have to be based on time of the year.

Cash discount - extended to customers who pay their bill before a specified date. Trade discount - a functional discount offered to channel members for performing their

roles. For example, a trade discount may be offered to a small retailer who may not purchase in quantity but nonetheless performs the important retail function.

Promotional discount - a short-term discounted price offered to stimulate sales.