Market Skimming

Setting an initially high price for a product or service before competitors enter the market.

Penetration Pricing

Setting a low price for a new product or service to attract customers.

Competitive Pricing

Products in a category match or follow the prices of competitors closely.

Pricing Policies

Strategies like Leader Pricing, Price Lining, Everyday Low Prices, Super Sizing, Negotiated Pricing, Interest-Free Pricing, Combo Pricing, and Psychological Pricing.

Factors Influencing Price

Convenience, status, trends, competition, quality, costs, target customer spending, desired profit, sales volume, and urgency.

Selling Price

The price paid by the customer for a product.

Gross Profit

The difference between the selling price and the cost of goods sold.

Variable Costs

Costs that fluctuate based on production levels.

Fixed Costs

Costs that remain constant regardless of production levels.

Break-even Point

The point where costs equal profits.

Distribution

How products move from producers to customers through channels like railroad, containerization, parcel post, trucking, pipelines, water transport, and air transport.

Direct Distribution

Direct link between producer and consumer.

Indirect Distribution

Involves intermediaries who take possession of goods, add mark-ups, and resell to consumers.

Importers

Hold exclusive rights to sell products in another country.

Retailers

Final link in the distribution chain, selling goods and services to customers.

Wholesalers

Buy products from sources and resell to retail stores or businesses, offering benefits like breaking bulk, warehousing, risk-bearing, financing, buying, transporting, managing, promoting, and providing market info.

Specialty Distribution

Indirect distribution channels not involving retail stores.

MARKET SKIMMING

Advantages

Company makes a lot quickly so they can cover their costs quickly - before competition enters the market.

Since the product is new, the company may not be able to produce a lot yet. High prices create prestige but limit demand.

Once development costs are covered, the company can lower prices to compete aggressively with the new competitors

MARKET SKIMMING disadvantages

Competitors benefit from all the work done by the originating company (product development, marketing/consumer awareness, creating distribution networks, etc)

Competitors can launch their product at lower costs because their development costs are lower.

PENETRATION PRICING

Advantages



Floods the market quickly, making it difficult for competitors gain market share.

Creates high consumer demand so the company quickly recoups costs.

Competitors will have difficulty matching prices.

PENETRATION PRICING disadvantages

Consumer demand must be very accurately estimated in order to ensure costs are covered.

Company must be able to meet the demand. This is especially difficult for new companies who don't have the $$$ to produce a lot without established orders.

It is always difficult to raise prices. Customer do not like it and they may switch to the competition.