Pricing Strategies

Cost-Plus

working out average cost per unit of a product and adding a percentage mark-up

Advantage: Simplistic and easy to calculate

Disadvantage: Doesn’t consider customer needs

Penetration

Products are initially sold at low prices to penetrate markets. Once a company gains market share, they increase prices.

Advantages: Mass market products sold in large volumes

Disadvantage: If price too low, customers can think it is low quality

Loss leader

Selling a product at or below its value

Advantage: Attracts customers, increases footfall

Disadvantages: Low brand image, risk of loss

Predatory pricing

reducing price to drive competitor out of market

Advantages: can bring customers to firm short-term

Disadvantages: illegal in US & EU, no brand loyalty

Premium pricing

Price is significantly higher than competitors

Advantages: high profit margin, higher barrier for new market entries

Disadvantages: requires strong brand loyalty, limited customers, risky