Pricing Strategies

In the class of yesterday, we began with the subject of the day, was the Pricing Strategies. Now I am going to speak of a theme.

The Pricing Strategies is divided in 15 possible strategies:

Penetration Pricing

- Price set to ‘penetrate the market’
- Low’ price to secure high volumes
- Typical in mass market products – chocolate bars, food stuffs, household goods, etc.
- Suitable for products with long anticipated life cycles
- May be useful if launching into a new market

Market Skimming

- High price, Low volumes
- Skim the profit from the market
- Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out)
- Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Value Pricing

- Price set in accordance with customer perceptions about the value of the product/service
- Examples include status products/exclusive products

Loss Leader

- Goods/services deliberately sold below cost to encourage sales elsewhere
- Typical in supermarkets, e.g. at Christmas, selling bottles of gin at £3 in the hope that people will be attracted to the store and buy other things
- Purchases of other items more than covers ‘loss’ on item sold
- e.g. ‘Free’ mobile phone when taking on contract package

Psychological Pricing

-Used to play on consumer perceptions
- Classic example - £9.99 instead of £10.99!
- Links with value pricing – high value goods priced according to what consumers THINK should be the price

Going Rate (Price Leadership)

- In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market
- May follow pricing leads of rivals especially where those rivals have a clear dominance of market share
- Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets

Tender Pricing

- Many contracts awarded on a tender basis
- Firm (or firms) submit their price for carrying out the work
- Purchaser then chooses which represents best value
- Mostly done in secret

Price Discrimination

- Charging a different price for the same good/service in different markets
- Requires each market to be impenetrable
- Requires different price elasticity of demand in each market

Destroyer/Predatory Pricing

- Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants
- Anti-competitive and illegal if it can be proved

Absorption/Full Cost Pricing

- Full Cost Pricing – attempting to set price to cover both fixed and variable costs
- Absorption Cost Pricing – Price set to ‘absorb’ some of the fixed costs of production

Marginal Cost Pricing

- Marginal cost – the cost of producing ONE extra or ONE fewer item of production
- MC pricing – allows flexibility
- Particularly relevant in transport where fixed costs may be relatively high
- Allows variable pricing structure – e.g. on a flight from London to New York – providing the cost of the extra passenger is covered, the price could be varied a good deal to attract customers and fill the aircraft

Contribution Pricing

- Contribution = Selling Price – Variable (direct costs)
- Prices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costs
- Similar in principle to marginal cost pricing
- Break-even analysis might be useful in such circumstances

Target Pricing

- Setting price to ‘target’ a specified profit level
- Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up
- Mark-up = Profit/Cost x 100

Cost-Plus Pricing

- Calculation of the average cost (AC) plus a mark up
- AC = Total Cost/Output

Influence of Elasticity

- Any pricing decision must be mindful of the impact of price elasticity
- The degree of price elasticity impacts on the level of sales and hence revenue
- Elasticity focuses on proportionate (percentage) changes
- PED = % Change in Quantity demanded/% Change in Price


Price Inelastic:
- % change in Q < % change in P - e.g. a 5% increase in price would be met by a fall in sales of something less than 5% -Revenue would rise - A 7% reduction in price would lead to a rise in sales of something less than 7% - Revenue would fall Price Elastic:
- % change in quantity demanded > % change in price
- e.g. A 4% rise in price would lead to sales falling by something more than 4%
- Revenue would fall
- A 9% fall in price would lead to a rise in sales of something more than 9%
- Revenue would rise

Later, we made an exercise on a video where had that to find the words that were incorrect and to change them by the correct ones of the dialog between several people.

In order to finalize the class, we made an exercise of vocabulary on the used suffixes that are used to form adjectives from verbs and prefixes that are used to form words with negative meanings.

Video Post

In the last class, I saw a video about the promotion of new shampoo.

In the video, the executives of the company were reunited to determine the name that was going to receive the product, for who went directed and the opinion that each member tapeworm of this product.

Later, I fill up questions about the video, dialogues between the executives, if true or false phrases that says were etc…Finally, I am made an exercise on like writing words in relation to its phonetic sound.