Pricing Strategies

Part 1: The Matrix

Consumer Demand

Consumer demand always sets the price: if Consumer demand always sets the price: if the consumer feels the price is too expensive, the consumer feels the price is too expensive, they may feel the value of the good or service they may feel the value of the good or service is lessis less

It is always easier to start high and drop the It is always easier to start high and drop the price to increase the perceived value than to price to increase the perceived value than to increase later and risk the value being lostincrease later and risk the value being lost

Consumer Demand

Price is sensitivePrice is sensitive, , meaning that meaning that fluctuations in price fluctuations in price cause fluctuations in cause fluctuations in demand (the basis of demand (the basis of economics)economics)

Pricing Strategies

There are There are fourfour pricing strategies to consider: pricing strategies to consider:

Economy PricingEconomy Pricing

Penetration PricingPenetration Pricing

Price SkimmingPrice Skimming

Premium PricingPremium Pricing

Economy Pricing

Costs of both manufacturing and marketing Costs of both manufacturing and marketing are kept to the minimumare kept to the minimum

Prices are the lowest possible as a resultPrices are the lowest possible as a result

Penetration Pricing

Introductory prices are kept intentionally low Introductory prices are kept intentionally low in order to gain market sharein order to gain market share

Once the customer is enjoying the good or Once the customer is enjoying the good or service on a regular basis, the price can service on a regular basis, the price can increaseincrease

Price Skimming

Companies exploit their competitive advantage by Companies exploit their competitive advantage by starting with a high price to match their raritystarting with a high price to match their rarity

High prices = high income, and competitors will High prices = high income, and competitors will enter the market for a portion of that initial profitenter the market for a portion of that initial profit

More competitors increases the supply, and so the More competitors increases the supply, and so the price drops to keep the product competitive price drops to keep the product competitive

Premium Pricing

The uniqueness of the product allows the The uniqueness of the product allows the producers to keep the price highproducers to keep the price high

Usually, there is a substantial competitive Usually, there is a substantial competitive advantage that allows the higher price to be advantage that allows the higher price to be accepted in the marketaccepted in the market

Premium pricing is usually associated with Premium pricing is usually associated with luxury itemsluxury items

Pricing Strategies Matrix

Additional Pricing Policies

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