Today w Long Term Pricing Strategies w Short

Today… w Long Term Pricing Strategies w Short Term Pricing Strategies

Price Consumers will only pay what they can afford and what they think is a reasonable price for the product. Consumers use price as a measure of quality. When setting a price for a product you need to consider: ØCosts of production ØProfit mark-up ØCompetitor prices

Long Term Pricing Strategies Low Price - Charge lower than competitors. Only appropriate where there is a little brand loyalty and competition in the market is high. Market Price - Setting price at a similar price to competitors. Homogeneous product means that price competition is not of benefit. They compete in other areas – service etc. High Price - High quality products, premium goods and services where image is important, such as perfumes.

Low Price w Aimed at the widest possible market and usually the products are cheap to make and have low profit margins. w Firms rely on volume sales to make their profits.

Market Price (Going Rate/Price Leadership) w 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 w May follow pricing leads of rivals especially where those rivals have a clear dominance of market share w Where competition is limited, ‘going rate’ pricing may be applicable – banks, petrol, supermarkets, electrical goods – find very similar prices in all outlets

High Price (Value Pricing) w Price set in accordance with customer perceptions about the value of the product/service. w Examples include status products/exclusive Companies may be able to products set prices according to perceived value. Title : BMW At The Frankfurt Auto Show. Copyright Getty Images available from http: //edina. ac. uk/eig/

Short Term Pricing Strategies Skimming Using a high price initially for a new product where there is little competition. Penetration Pricing Used to introduce a product to an established market. Allows the business to achieve sales and gain market share very quickly. Usually set a low price to attract customers. Once product is established price can increase.

Market Skimming Plasma Screens: Currently at high prices but for how long? Title: thin-shaped television. Copyright Getty Images available from http: //edina. ac. uk/eig/ w High price, Low volumes w Skim the profit from the market w 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) w Examples include: Playstation, jewellery, digital technology, new DVDs, etc.

Penetration Pricing w Price set to ‘penetrate the market’ w ‘Low’ price to secure high volumes w Typical in mass market products – chocolate bars, food stuffs, household goods, etc. w Suitable for products with long anticipated life cycles w May be useful if launching into a new market

Short Term Pricing Strategies Destroyer Pricing Setting a very low price to destroy the competition. Product probably being sold at a loss, however once competition is destroyed the price will return to market price. Promotional Pricing Used to boost sales and create interest in a product by lowering the price. Supermarkets use this for some of their sales lines, as loss leaders. Demand-orientated Pricing Price varies with the demand, ie crops, trains, phones etc.

Destroyer/Predatory Pricing Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market. Title: Bill Gates speaks at UNIX convention. Copyright Getty Images available from http: //edina. ac. uk/eig/ w Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants w Anti-competitive and illegal if it can be proved

Promotional Pricing (Loss Leader) w Goods/services deliberately sold below cost to encourage sales elsewhere w Typical in supermarkets – e. g. Christmas, sell bottles of gin at £ 3 in the hope that people will be attracted to the store and buy other things w Purchases of other items more than covers ‘loss’ on item sold w E. g. ‘Free’ mobile phone when taking on contract package

Demand Orientated Pricing (Price Discrimination) Prices for rail travel differ for the same journey at different times of the day Title: Inter-City 125. Copyright Getty Images available from http: //edina. ac. uk/eig/ w Charging a different price for the same good/service in different markets w Requires each market to be impenetrable w Requires different price elasticity of demand in each market