Intro to Pricing Strategy

Types of Price Objectives

• Profit/ Financial oriented (maximize profit, ROI)

• Sales-oriented (increase market share)

• Competitive-oriented (match or undercut competitors)

• Image-oriented (premium or penetration)

Pricing Factors

• Fixed and variable costs

• Competition

• Company objectives

• Proposed positioning strategies

• Target group and willingness to pay

Main factors that influence pricing decisions

1. Costs – Fixed & variable costs set the minimum price (break-even analysis).

2. Customers – Price sensitivity, perceived value, willingness to pay (luxury vs. commodity).

3. Competition – Benchmarking, positioning, price wars (e.g., airlines, supermarkets).

4. Company Objectives – Profitability, market share, brand image (penetration vs. skimming).

5. Channel Partners – Distributor/retailer margins, commissions (retail markups).

6. Legal & Ethical Issues – Price fixing, dumping, discrimination, regulations (e.g., EU rules).

7. Macroeconomic Context – Inflation, exchange rates, consumer confidence (crisis-based adjustments).

Penetration Pricing

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.

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.

Competition Pricing

Setting a price in comparison with competitors. In reality a firm has three options and these are to price lower, price the same or price higher than competitors. Price Matching

Product Line Pricing

Pricing different products within the same product range at different price points.

Bundle Pricing

The organization bundles a group of products at a reduced price. Common methods are buy one and get one free promotions or BOGOFs as they are now known.

Premium Pricing

The price is set high to indicate that the product is "exclusive"

Psychological Pricing

The seller here will consider the psychology of price and the positioning of price within the market place.

Optimal Pricing

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

Cost-Plus Pricing

The price of the product is production costs plus a set amount ("mark up") based on how much profit (return) that the company wants to make. Although this method ensures the price covers production costs it does not take consumer demand or competitive pricing into account which could place the company at a competitive disadvantage."

Cost Based Pricing

This is similar to cost plus pricing in that it takes costs into account but it will consider other factors such as market conditions when setting prices.

Value Based Pricing

The pricing strategy considers the value of the product to consumers rather than the how much it cost to produce it. Value is based on the benefits it provides to the consumer: convenience, well being, reputation or joy.

Discount Pricing

a deliberate decision to sell a product or service at a lower price than the listed or advertised price. Discounts can be temporary or permanent (for clearance products). They can also take different forms (e.g., percentage off vs. free shipping).

Dynamic Pricing

A flexible strategy where product prices adjust in real-time based on supply, demand, season, or other factors, helping businesses optimize revenue, stay competitive, and improve customer satisfaction.

Economy Pricing

a sales strategy where businesses offer products or services at the lowest possible price, focusing on basic functionality rather than luxury features. This approach keeps production and marketing costs minimal, appealing to budget-conscious consumers.

Loyalty Pricing

Offering discounts or special deals to returning customers to encourage repeat business and build brand loyalty.

Yield Management

Strategy to maximize revenue from fixed capacity (e.g., hotel rooms, airline seats) by forecasting demand, segmenting customers, and adjusting prices over time; dynamic pricing is its real-time, automated subset.

Keystone Pricing

Retail strategy where the selling price is double the wholesale cost (100% markup, 50% gross margin) to cover costs and ensure profitability, common in apparel, jewelry, and specialty goods.

Loss Leader Pricing

A strategy where a product is sold at a very low price (sometimes below cost) to attract customers, with the goal of increasing sales of other profitable items.

• Used to drive store traffic

• Common in supermarkets and retail

• Profit comes from complementary purchases

Tiered Pricing

Businesses charge different prices for their products or services based on different tiers. There are several tiered pricing models businesses can use to price their products and services. The most common are volumebased, feature-based, usage-based, and subscription-based.

Flat Rate Pricing

A business or individual charges a fixed fee for a particular service, regardless of how much time it takes to complete. Flat-rate pricing is sometimes called ‘fixed fee’ or ‘flat fee’ pricing. With the flat-rate pricing model, fixed, variable, indirect, and direct costs are all factored into the final price. Fluctuations in costs or changes in the time it takes to complete a project don’t affect the customer.

Target Pricing

a method that businesses use to calculate the selling price for a product based on market prices. First, a company decides on a competitive price for its product based on market research and what similar products are selling for. Once the business determines its product's price, the business sets how much of a profit it wants to make from it, which is also known as its profit margin.After setting a profit margin, the company must figure out if the cost of producing or procuring the product is within the remaining budget. If the company can't complete the product within the cost constraint, then they cancel the project

Geographic Pricing

the practice of adjusting a product's price based on the buyer's location. Companies use it to account for factors like shipping costs and local demand while tailoring prices to what different markets can bear. By doing so, they aim to maximize revenue across regions.

Seasonal Pricing

usually involves raising prices during peak seasons and lowering them during slow seasons.

What are the 3 C’s of Marketing?

• Company – Internal strengths, capabilities, resources, brand positioning, and objectives.

• Customers – Needs, preferences, behaviors, and willingness to pay.

• Competitors – Market position, pricing, strategies, strengths, and weaknesses.