Pricing methods

What is pricing?

Pricing is a term used by firms when discussing the selling process of their products. Usually pricing strategies are put in place for the company to select a price which is fair and worthy of the product. Price is based on how much it costs to produce the product and the average market price of the same or a similar product amongst a range of other overheads.

There are many different pricing strategies:

Penetration Pricing: The starting price is set extremely low- lower than is normal- in order to gain market share. After the business has achieved this, it increases the price.

Premium Pricing: Where there is a unique brand, the business charges a high price in the knowledge that they have a substantial competitive advantage.

Economy Pricing: Low prices. Costs are kept low in production in order to keep down the selling price. Items priced according to economy pricing are popular during recession.

Value Pricing: This strategy is used where external factors force business’ to provide value products and services e.g. a recession or increased competition. This strategy makes it seem like you are getting a lot for your money.

Price Skimming: The high price of a product attracts more manufacturers into a market, meaning that the increased supply of the product forces the market price down.

Geographical Pricing: The same product being priced differently across the world due to rarity, shipping costs, or tax.

Product Line Pricing: When there is a range of products or services, the customer expects to pay for what is fair incrementally over the range. In this way, the pricing of this strategy rarely reflects the cost of making the product. For example, in an ice cream cabinet, some flavours could be a lot more expensive to produce than others, however consumers expect to pay the same price for all of the ice cream, and more only if the quantity increases.

Promotional Pricing: This includes sales, buy one get one free, special offers, vouchers, discounts etc.

Product Bundle Pricing: Another form of promotional pricing. Often used to shift old stock or slow-selling items by selling them together (at a lower price) with better selling items.

Captive Product Pricing: When you buy a product for a cheap price but the essential components that are required to make the item useful are sold at an expensive price.

Optional Product Pricing: Including pricey optional extras to offer with a low cost product or service.

Why is pricing key for a business?

Pricing can make or break a business. It is one of the biggest factors when it comes to offering products and services, and usually determines popularity. It must be well thought out and researched so that you benefit from high returns. If you’d like to read more about pricing, have a look at these links: