Pricing strategies

Pricing strategies

Pricing strategies are broad action plans for achieving pricing objectives. Pricing strategies can be

1.       Product life cycle strategy

2.       Price change strategy

3.       Price response strategy

4.       Psychological pricing strategy

Product life cycle pricing strategy

Pricing strategy differs according to the stage of product life cycle.

·         Introduction stage: pricing strategy differs for new products. They can be

1.       Price skimming: in price skimming, products are sold at a higher price to achieve break even with a fewer number of sales. Selling a product at a high price, sacrificing high sales to gain a high profit is therefore "skimming" the market. This strategy is used to recover heavy research and development costs incurred in developing the products.  
“This strategy is employed only for a limited duration to recover most of the investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can have some setbacks as it could leave the product at a high price against the competition”

2.       Competitive pricing: price close to the competitor’s price is charged for modified products to match competition.

3.       Penetration pricing: low price is charged for new products to achieve larger market share.

·         Growth stage: the sales rise rapidly in this stage. A slightly lower price than the introduction stage is charged. The objective is to capture bigger market share.

·         Maturity stage: competition becomes intense in this stage. Low price strategy is used to defend the market share.

·         Decline stage: sales decline rapidly. Cost is aimed at break-even level or even less to clear out stocks. Hardcore loyal and laggards buy the products.

Price change strategy:

Changes in the environmental forces necessitate price changes. The strategies can be

1.       Price increase strategy: inflation, new taxes, and shortages can require price increase. Quality improvements also require price increase

2.       Price decrease strategy: extra production capacity, price wars, and need for greater market share can require price decreases. Competitors generally respond by lowering their prices as well.

3.       Price maintain strategy: price can be maintained by adding value to the product

Psychological pricing strategy

Psychological pricing strategy encourage emotional buying. The customers perceive the price favorably. The pricing strategies can be

1.       Prestige pricing strategy: prices aim to provide prestige to the product. They are set at an artificially high level. Perfumes, jewelry, watches are suitable for such pricing strategy.

2.       Odd-even pricing strategy: odd number pricing enhances economy image of the product, for example Rs. 199. Even number pricing enhances quality image of the product, for example Rs. 200

Promotional pricing

 It involves strategies involves reducing the prices of products temporarily to attract customers for increased future revenue and profit.

1.       Loss leader pricing: The idea behind loss leader pricing is to sell goods below costs to attract customers who will in return make up for the losses by purchasing other products.

2.       Special event pricing: it is one of the promotional pricing strategies in which the marketers establish special prices in certain seasons to draw more customers and sales.

3.       Cash rebates : it refers to the return of a part of a purchase price by seller to buyer after the purchase has been made.