Business Synthesis Presentation - How to Set Price Looking into different pricing strategies which include Market-Orientated Pricing Cost-Plus Pricing Freemium Loss-Leader Pricing Penetration Pricing Price Skimming

1. How to Set Price

2. What is Pricing?
A method adopted by a firm to set is selling price
Pricing strategies vary from firm to firm
Vary factors can include, competition, type of product and market, and the aims of the firm
The main pricing strategies are as follows:

3. Market-Orientated Pricing
Setting price based upon existing market conditions
Depending on the product features, the price might be set higher or lower than competitors
Price sensitivity
Price sensitive – match competitors price, or set below
Price insensitive – above competitors price

4. Cost-Plus Pricing
Taking into account the cost of the product
Add together:
Direct material cost
Direct labour cost
Overhead cost
Derive a price with a mark up percentage on this figure
More effective in less competitive market

5. Freemium
Practice of offering a basic set of services for free, and enhanced content for a fee
Results in a large proportion of customer using the services for free, and a smaller proportion
paying for additional services
Convincing customers
Key functionality must be paid for
Notable success internet based/gaming

6. Loss-Leader Pricing
Aggressive pricing strategy
Sell selected goods below cost in order to attract customers to buy, usually complementary
goods, which make up for the losses
More effective on elastic products than inelastic

7. Penetration Pricing
Usually used for new entrants to the market
Setting a low price to attract mass market
Used in competitive market where demand is sensitive
Also used where economies of scale can be gained by mass production

8. Price Skimming
Initial price is high
Product must appeal to a market segment where price is not an important consideration
Price will offset high development costs
Once reputation has been established and competition develops, price might be lowered to
keep market share

9. Questions
With a market-orientated pricing strategy, if demand is inelastic how should a firm set their
price?
A) Matching competitors price
B) Below competitors price
C) Above competitors price
D) However they feel like it

10. Questions
What does cost-plus pricing not take into account?
A) Materials
B) Advertising
C) Labour wages
D) Transportation costs

11. Questions
What pricing strategy would be used if barriers to entry were high?
A) Price Skimming
B) Loss Leader Pricing
C) Cost-Plus Pricing
D) Penetration Pricing

12. Bibliography
http://www.accountingtools.com/cost-plus-pricing
http://www.accountingtools.com/freemium-pricing
http://www.businessdictionary.com/definition/pricing.html
http://www.businessdictionary.com/definition/market-based-pricing.html
David Needle, Business In Context, Cengage Learning EMEA, 2010
http://www.inc.com/encyclopedia/loss-leader-pricing.html
http://smallbusiness.chron.com/market-based-pricing-strategy-5121.html