1.3.3 Pricing Strategies

Price skimming

Product is initially priced high and then prices are lowered later on. Often used for innovative products with less competition to recover research and development costs.

Price penetration

Setting the price low initially and increasing it once the product is established. This strategy helps gain market share quickly, especially in competitive markets.

Cost-plus pricing

Adding a percentage on top of the production costs to make a profit. It considers the total cost of production and ensures accuracy in setting prices.

Competitive pricing

Setting prices in relation to other products on the market, often the same or lower than competitors. Used to attract customers and may involve undercutting established brands.

Predatory pricing

Pricing products very low to drive a rival out of business, even at a loss initially. Once the competition is gone, prices can be raised to gain control over the market.

Psychological pricing

A tactic that entices customers without changing the price significantly. It includes strategies like setting prices just below a round number or offering decoy pricing.

Factors influencing pricing strategy

Number of unique selling points or product differentiation, level of competition, strength of the brand, price elasticity of demand, stage in the product's life cycle, costs, and the need to make a profit.

Price elasticity of demand

A measure of how sensitive customers are to changes in price. Low price elasticity means customers are less responsive to price changes, allowing higher prices to be charged.

Pricing tactics

Short-term responses implemented to leverage opportunities or address threats in the market, such as discounts, promotions, or bundling products.

Loss leader

A product deliberately priced below cost to attract customers and generate additional profitable business. It aims to entice customers to make other purchases.