Pricing Strategies

Introduction

There are different pricing strategies that a firm can use to help them price their product effectively. Lets discuss eight popular pricing strategies.

Popular Pricing Strategies

1. Penetration Pricing - The price is set low by the firm. The objective for penetration pricing is to increase sales and market share quickly.
2. Skimming pricing - A high price is set initially and is then slowly lowered over the life of the product. It is set high initially because the manufacturer believes "excited" consumers keen to get their hands on the latest product will pay the price requested but once the excitement has "died down" consumers who do not have the product will not pay the same high price.
3. Premium pricing - The price set by the firm is to signal to buyers that the product is of premium quality.
4. Psychological pricing - The seller will not use a whole number to sell the product. For example consumers are more likely to pay 99 pence instead of £1, as it feels like you are paying pennies instead of pounds for a product .

5. Captive Pricing - Captive pricing involves the firm charging a low price for the core product and a high price for accessories and replacement parts. The best way to describe captive pricing is with an example. If you buy a printer for £50, when the ink runs out you are held into buying a cartridge specified by the printer manufacturer. You are held captive to buy that cartridge.
6. Cost Plus Pricing - With cost plus pricing a firm will place a standard mark up on the production cost of the product. For example if a product costs £10 and the markup is 20% the selling price will be £12.
7. Product Line Pricing - A company that sells many different products will have a different price for each product within a product line. For example, Samsung has a variety of different phones at different prices aimed at different target markets.
8. Optional Pricing - Many companies charge optional extras for items in order to maximise profit. An example of this is a car dealer charging optional extras for a different car colour, or a car with a sophisticated music system.

Summary

Price is one of the four components making up the marketing mix. In this article we have discussed eight popular marketing strategies penetration pricing, skimming pricing, premium pricing, psychological pricing, captive pricing, cost plus pricing, product line pricing and optional pricing. The most appropriate pricing strategy will depend on the product, the firm's resources and the product market, the firms objective and target market.