PRICING METHODS,TYPES,SETTING PRICE,PRICE ADOPTIONS
- 2. METHODS OF PRICING a. Cost-Based Pricing Description: Prices are determined by adding a fixed markup to the cost of producing or acquiring a product. Example: If the cost to produce a product is $50, and the desired markup is 20%, the price would be set at $60. Advantages: Simple to calculate and ensures that costs are covered. Disadvantages: Does not consider market demand or competition. It may result in overpricing or underpricing.
- 3. METHODS OF PRICING b. Value-Based Pricing Description: Prices are set based on the perceived value to the customer rather than the cost to produce. Example: A luxury brand might price its items higher because customers perceive them to be of higher value. Advantages: Can command premium prices if the value is perceived as high. Disadvantages: Requires deep understanding of customer perception and market research.
- 4. METHODS OF PRICING c. Competition-Based Pricing Description: Pricing is determined by analyzing the prices of competitors in the market. Example: If competitors price their product at $40, a company may price its product slightly lower to attract customers or slightly higher to signal superior quality. Advantages: Ensures competitiveness in the market. Disadvantages: May lead to price wars and reduces differentiation.
- 5. METHODS OF PRICING d. Penetration Pricing Description: Setting a low price to quickly attract customers and gain market share. Example: A company may offer a new product at a very low price to get customers to try it, and then gradually increase the price over time. Advantages: Rapid market entry and brand awareness. Disadvantages: May be unsustainable in the long term if costs are not covered.
- 6. METHODS OF PRICING e. Skimming Pricing Description: Setting a high price initially and gradually lowering it over time as the product moves through its lifecycle. Example: New technology products like smartphones or gaming consoles often use this strategy. Advantages: Maximizes profit from early adopters willing to pay a premium. Disadvantages: May limit market share initially and could alienate price-sensitive customers.
- 7. METHODS OF PRICING f. Psychological Pricing Description: Setting prices that have a psychological impact on customers (e.g., Rs.9.99 instead of Rs.10). Example: Pricing a product at Rs.99.99 to make it appear cheaper than Rs.100. Advantages: Taps into consumer psychology, potentially increasing sales. Disadvantages: May be seen as manipulative or deceptive if overused.
- 8. TYPES OF PRICING a. Premium Pricing Description: Setting a high price to reflect the high quality, status, or exclusivity of the product. Example: High-end luxury brands like Rolex or Louis Vuitton use premium pricing. Purpose: Position the brand as luxurious or exclusive, justifying higher prices.
- 9. TYPES OF PRICING b. Economy Pricing Description: Setting a low price to attract budget- conscious customers. Example: Generic or store-brand products like Walmart’s private-label items. Purpose: Appeal to price-sensitive consumers and compete on price.
- 10. TYPES OF PRICING c. Bundle Pricing Description: Offering a group of products or services together at a lower price than if purchased individually. Example: A fast-food restaurant offering a combo meal at a discount. Purpose: Encourage customers to purchase more by offering better value.
- 11. TYPES OF PRICING d. Geographic Pricing Description: Setting different prices for the same product depending on the geographic location of the customer. Example: The price of a product might be higher in urban areas compared to rural areas. Purpose: Account for differences in operating costs or consumer purchasing power across regions.
- 12. TYPES OF PRICING e. Dynamic Pricing Description: Adjusting prices continuously based on market demand, competition, or other external factors. Example: Airlines or ride-sharing apps that change prices based on demand at a particular time. Purpose: Maximize revenue by responding to shifts in supply and demand.
- 13. TYPES OF PRICING f. Loss Leader Pricing Description: Pricing a product very low, often below cost, to attract customers in hopes that they will purchase other, higher-margin items. Example: Grocery stores selling milk or bread at a loss to bring customers in. Purpose: Drive traffic to the store and increase overall sales.
- 14. TYPES OF PRICING 3. Setting the Price When determining the price of a product or service, businesses should consider several factors: Cost Structure: Ensure that the price covers all direct and indirect costs (e.g., materials, labor, overhead). Target Market: Understand the purchasing power, preferences, and behavior of your target customers. Competitor Pricing: Evaluate how competitors are pricing similar products and adjust accordingly. Market Demand: Assess the elasticity of demand—how sensitive customers are to price changes. Brand Positioning: Ensure the price aligns with how you want your brand to be perceived in the market. External Factors: Consider factors such as economic conditions, regulations, and supply chain costs.
- 15. Price Adaptations a. Price Reductions Lowering prices to boost sales, clear inventory, or respond to competitive pressures. b. Price Increases Increasing prices due to higher costs, inflation, or improved product value. c. Discounts and Promotions Offering time-limited discounts, special offers, or loyalty rewards to stimulate sales. d. Price Differentiation Offering different prices for different customer segments, such as student discounts or senior citizen pricing. e. Psychological Adaptations Introducing changes in pricing strategy that reflect changing consumer sentiment, like offering installment plans for expensive products.