The document discusses several pricing strategies including penetration pricing, market skimming, value pricing, loss leader pricing, psychological pricing, going rate pricing, tender pricing, price discrimination, and destroyer pricing. Penetration pricing uses a low initial price to gain market share, while market skimming uses a high initial price for new products. Value pricing sets prices according to customer perceptions of worth.

1. Pricing Strategies
Mrs. Jayashree Vispute

2. 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
 Results in a Larger Market Share

3. 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)
Results in Fewer, More Profitable Sales.
Eg. Playstation, jewellery, digital technology, new DVDs, etc.

4. Value Pricing
 Price set in accordance
with customer
perceptions about the
value of the
product/service
 Examples include status
products/exclusive
products Companies may be able to set prices
according to perceived value.

5. Loss Leader
 Goods/services deliberately sold below cost to
encourage sales elsewhere
 Typical in supermarkets, e.g. at Diwali, selling
scented soap at Rs. 13 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

6. Psychological Pricing
 Used to play on consumer perceptions
 Classic example – Rs.999 instead of Rs.1000!
 Links with value pricing – high value goods priced
according to what consumers THINK should be the
price

7. 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, supermarket products, electrical
goods – find very similar prices in all outlets

8. 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

9. 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
Prices for rail travel differ for the same
journey at different times of the day

10. 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

11. 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

12. Market Skimming Market Penetration
>Setting a High
Price for a New
Product to
Maximize
Revenues from the
Target Market.
>Results in Fewer,
More Profitable
Sales.
> Setting a Low Price
for a New Product
in Order to Attract
a Large Number of
Buyers.
>Results in a Larger
Market Share.

13. Pricing strategies
 Premium pricing
 Uses a high price, but gives a good product/service exchange
e.g. Concorde, The Ritz Hotel
 Penetration pricing
 offers low price to gain market share - then increases price
 e.g. France Telecom - to attract new corporate clients (or
Telewest cable)
 Economy pricing
 placed at ‘no frills’, low price
 e.g. Soups, spaghetti, beans - ‘economy’ brands

14.  Price skimming
 where prices are high - usually during introduction
 e.g new albums or films on release
 ultimately prices will reduce to the ‘parity’
 Psychological pricing
 to get a customer to respond on an emotional, rather than
rational basis
 .e.g 99 not 100 ‘price point perspective
 Product line pricing
 rationale of a product range
 e.g. DairyMilk 20, three-pack 60, chotu-size 2
 Pricing variations
 ‘off-peak’ pricing, early booking discounts,etc
 e.g offering a ‘cash back’ incentive for expensive goods

15.  Optional product-pricing
 e.g. optional extras - BMW famously under-equipped
 Captive product pricing
 products that complement others
 e.g Gillette razors (low price) and blades (high price)
 Product-bundle pricing
 sellers combine several products at the same price
 e.g software, books, CDs.
 Promotional pricing
 BOGOF e.g. toothpaste, soups, etc

16.  Geographical pricing
 different prices for customers in different parts of the
world
 e.g.Include shipping costs, or place on PLC
 Value pricing
 usually during difficult economic conditions
 e.g. Value menus at McDonalds