This post is to provide you with more information regarding pricing strategies. We will review them briefly at the start of next class period, however, due to the engaging discussion today, we will not be able to spend as much class time reviewing this as I had hoped. As always, feel free to email me or come by the office if you have any questions or would like to discuss the topic! Enjoy.
DIFFERENT PRICING STRATEGIES
1. Penetration Pricing: The company sets a low price o increase sales and market share. Once market share has been captured the company may increase the price. Ex: A television satellite company sets a low price to get subscribers then increases the price as their customer base increases.
2. Skimming Pricing: The company 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. This is often popular in high-technology industries. Ex: A computer company introduces a new cell phone at a high price (<$500) at launch, then gradually reduces the price over the following 2 years, charging a premium at launch and the lowest price (sometimes free with contract renewal) near the end of its life cycle. Think Apple and the iPhone.
3. Competition Pricing: Setting a price in comparison with competitors. Really a company has three options and these are to price lower than competition, equal to competition or higher than the competition. Ex. Some companies offer a price matching service to match what their competition is offering. Think about the new Walmart television advertisements.
4. Bundle Pricing: The company bundles a group of products or services at a reduced price. Common methods are buy one and get one free promotions. This strategy is popular in supermarkets and other retail centers.
5. Psychological Pricing: The seller will consider the psychology of price and the positioning of price within the market place. Ex. The seller will charge $2.99 instead of $3.00 or even $199 instead of $200. The reason why this method work is because buyers will still say that they purchased their product under $200 even though it was only a dollar away. This is a rather engaging pricing strategy. Think about gas stations and their pricing strategies on a gallon of fuel.
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