Pricing Strategies Overview

Pricing Strategies

• Price: The amount of money exchanged for a product or service, considering all customer benefits.

4Cs in Pricing Strategy

• Customers: Understanding customer needs and value perceptions.
• Current Positioning: Analyzing the product's current market position.
• Competitors: Evaluating competitor pricing strategies.
• Costs: Determining production and operational costs.

Pricing Criteria: Costs, Demand, and Competition

• Value-Based Pricing: Setting prices based on perceived customer value, not cost. Customer-centric.
• Cost-Based Pricing: Setting prices based on the cost of production. Product-centric.

Cost-Based Pricing

• Design a good product: Developing a desirable product.
• Determine product costs: Calculating production costs.
• Set price based on cost: Pricing based on cost plus a markup.
• Convince buyers of product value: Communicating the value proposition.
• Design product to deliver desired value at the target price: Tailoring the product to meet customer needs and desired price.

Customer Value-Based Pricing

• Good-Value Pricing: Offering products with desirable quality and service at fair prices.
• Everyday Low Pricing (EDLP): Consistent low pricing with few temporary discounts.
• High-Low Pricing: Higher everyday prices with occasional discounts/promotions.
• Value-Added Pricing: Differentiating a product with higher-priced features and services.

Cost-Plus Pricing

• Cost-plus pricing: Adding a markup to the cost of the product.
• Benefits: Certainty about costs, minimizes price competition.

Market-Skimming Pricing

• Setting a high price: Maximizing profit for new products.
• Quality and image: Using product's perceived quality as sales justification.
• Profit maximisation target: Setting higher prices to "secure" profitable sales.
• Important Note: High initial price may attract limited customers if the price cannot justify the high quality.

Market-Penetration Pricing

• Setting a low price: Maximizing profit on numerous sales; attracting price-sensitive customers.
• Significant volume: Aiming for significant sales in markets where units need to be sold to cover costs.
• Competitor deterence: Keeping competitors out of a price-sensitive market by making entrance not profitable.
• Important Note: Might not be profitable in every market.

Product Line Pricing

• Pricing steps between products: Using cost or customer perceived value differences to determine acceptable price ranges between products.

Optional-product pricing

• Charging extra for accessories related to a main product (e.g., phone and its case).

Captive-product pricing

• Setting low prices for a main product and high prices for affiliated products (e.g., printers and printer ink).

By-product pricing

• Pricing by-products to reduce costs of the main product and/or increase profitability.

Product-bundle pricing

• Bundling multiple products together to sell at a discounted price (e.g., shampoo kits).

Discount Pricing

• Using discounts to influence consumer behavior; such as straight price reduction, allowances, or money paid by producers to retailers.

Psychological Pricing

• Choosing prices to influence consumer perception by highlighting specific price points.

Promotional Pricing

• Temporarily reducing prices to stimulate short-term sales and motivate customers.

Segmented Pricing

• Pricing products differently depending on customer segments (or based on product variations, location or timing).