How real-world companies price
Abraham Olaobaju and Billy Sahota
•This is a method used when a company introduces a new
product (especially when it is a new technology).
•The main goal of the company is to establish a high price
for the good and selling it to customers who are less price
sensitive.The amount received from the sale of this good
to cover the cost of producing and advertising it is known
as Total Revenue(P x Q).Skimming is a strategy used to
pursue the objective of profit maximization.
So therefore…... Price skimming can
be used when:
● Demand is must be relatively inelastic.
● Large production cost savings are not
expected at high output production.
● The company does not have the resources
to finance the large capital expenditures
necessary for a high quantity of the product
to be produced with initially low profit
•This sort of pricing strategy is used by companies
that wish to enter an existing and competitive
market. A competitive market is a market with
many buyers and sellers trading identical products
so that each buyer and seller is a price taker.The
goal of the company in this case is to maximize the
quantity of the good sold by reducing the price.
So therefore……… Penetration
pricing can be used when:
● Demand is expected to be highly elastic.
● Large decreases in cost of production is
expected as output increases.
● The product is of the nature of something
that can gain mass appeal fairly quickly.
● There is a threat of impending competition.
•This strategy is used when companies find out that the
cost of living in some markets are high. So they decide to
move to does areas with the aim to increase Total revenue
•Consequently, pricing can become extremely complicated,
so the company may need to decentralize marketing and
finance departments on a more regional basis. That way
each region can track product sales and make pricing
changes as needed.
Pricing In apparel Industry
•Apparel industry creates a fierce price
competition among some brands and an equally
fierce brand-image competition among others.
•This creates a trade off between some
companies about weather to improvise a high
price or a low price.
● Many consumers seek low prices when shopping
for apparel. Serving this segment can yield
significant sales volume at the expense of lower
● Customers in this segment are willing to sacrifice
quality for affordability and are less likely to be
loyal to specific brands.
● Value shoppers are not willing to sacrifice quality for
extremely low prices, but they also are not willing to
pay more than apparel is worth simply for a popular
● Consumers in this segment look for clothing and
accessories that will last several years or more,
making the durability of materials a prime concern.
● In the luxury tier of the market, consumers' price sensitivity
often is more closely correlated with a brand's image rather
than inherent product quality or market value.
● Apparel products are closely tied with self-expression and
social status in consumers' minds, so consumers in this
segment are often more concerned with the social image of
their apparel than its durability of the quality of materials.
● The apparel industry involves a lot of economic topics
we talked about in class.
● Tradeoffs, Opportunity cost, Rational Thinking, Marginal
changes and incentives.
● Generally, all industries engaging in productive
activities follow to ten principles of economics.
● From the decision making of a firm to produce more or
less of a product (people face trade-offs) to the
strategies used by firms to change people's incentives
to buy more or less goods.
Sources and references
● "How Much Do Consumers Spend on Apparel?" U.S. Bureau of
Labor Statistics. U.S. Bureau of Labor Statistics, n.d. Web. 03
● "Pricing Strategies for the Apparel Industry." Small Business.
N.p., n.d. Web. 03 Dec. 2014.