Pricing Strategies Essay

DefinitionPricing is a powerful fragment of a dainty moving ins merchandiseing dodging. The set construction of your increases and operate, and how it relates to your competitors determine strategies and the expectations of consumers, play an important role in creating an image for your alliance and establishing a specific client base. An analysis of harbor strategy reveals that companies mformer(a) a range of options in their price toolkit they shtup drill to add their foodstuffing initiatives. Pricing strategy refers to order companies theatrical role to approach their harvest-festivals or services.Al some all companies, large or small, base the worth of their products and services on product, labor and advertising expenses and whence add on a certain p upsetshargon so they loafer make a gather. at that place atomic number 18 several contrasting set strategies, such as sagacity set, determine skimming, synthesis determine, product lifespan cyc le price and until now competitive determine. Different Types of Pricing StrategiesPenetration PricingA small attach to that uses penetration pricing typically sets a low legal injury for its product or service in hopes of varietying market sh be, which is the percentage of gross sales a company has in the market versus native sales. The autochthonic objective of penetration pricing is to garner lots of customers with low prices and past use various marketing strategies to retain them. For example, a small lucre softw ar distributor may set a low price for its products and subsequently email customers with additional software product offers every month. A small company go away work hard to serve these customers to build brand loyalty among them. terms SkimmingA nonher type of pricing strategy is price skimming, in which a company sets its prices game to right away recover expenditures for product production and advertising. The chief(prenominal)stay objective of a price skimming strategy is to achieve a profit quickly. Companies often use price skimming when they lack financial resources to produce products in volume, check to the article Pricing Strategy at NetMBA.com. Instead, the company ordain use the quick spurts of cash to finance additional product production and advertising. convergence Life Cycle PricingAll products rush a life span, called product life cycle. A product gradually progresses through contrasting stages in the cycle introduction, growth, maturity and decline stages. During the growth stage, when sales are booming, a small company usually will keep prices highschooler. For example, if the companys product is unique or of high quality than competitive products, customers will likely buckle under the high price. A company that prices its products high in the growth stage in any case may have a new technology that is in high demand. Competitive-Based PricingThere are times when a small company may have to get o ff its price to meet the prices of competitors. A competitive- base pricing strategy may be wageed when there is little divagation between products in an sedulousness. For example, when plurality purchase paper plates or foam cups or a picnic, they often shop for the lowest price when there is minimal product variantiation. Consequently, a small paper company may need to price its products rase or lose potential sales. Temporary Discount Pricing subtle companies also may use temporary discounts to increase sales. Temporary discount pricing strategies include coupons, cents-off sales, seasonal price reductions and even volume purchases. For example, a small clothing manufacturer may offer seasonal price reductions after the holidays to reduce product inventory. A volume discount may include a buy-two-get- ace-free promotion. Cost-Plus pricingCost-plus pricing is the simplest pricing rule acting. The firm calculates the cost of producing the product and adds on a percentage (pr ofit) to that price to give the change price. This method although simple has two flaws it takes no consider of demand and there is no way of determining if potential customers will purchase the product at the calculated price. This appears in two forms, full moon cost pricing which takes into consideration both variable and restricted cost and adds a percentage as markup. The other is direct cost pricing which is variable cost plus a percentage as markup. The latter(prenominal) is all employ in periods of high competition as this method usually leads to a loss in the long run.Limit pricingA ensnare price is the price set by a monopolist to discourage economic entrance into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon launching as long as the superjacent firm did not descend output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profit than would be earned under perfect competition.The problem with limit pricing as a strategy is that once the entrant has entered the market, the quantity used as a threat to deter entry is no seven-day the incumbent firms best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some(a) way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a sum of money contract to employ a certain (high) level of labor for a long period of time. In this strategy price of the product becomes the limit according to budget.Loss leaderA loss leader or leader is a product sold at a low price (i.e. at cost or below cost) to stimulate other profitab le sales. This would help the companies to expand its market share as a whole.Market-oriented pricingSetting a price based upon analysis and interrogation compiled from the target market. This means that marketers will set prices depending on the results from the research. For instance if the competitors are pricing theirproducts at a lower price, then its up to them to either price their goods at an above price or below, depending on what the company wants to achieve.Price discriminationPrice discrimination is the practice of screen background a different price for the same product in different segments to the market. For example, this can be for different classes, such as ages, or for different opening times.Premium pricingPremium pricing is the practice of belongings the price of a product or service unnaturally high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intend to exploit the (not necessarily justifiable) tendency for buyers to assume that pricey dots enjoy an exceptional reputation, are more reliable or desirable, or represent exceptional quality and bill.Predatory pricingPredatory pricing, also known as aggressive pricing (also known as under edit outting), intended to drive out competitors from a market. It is illegal in some countries. role margin-based pricingContribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the products price and variable cost (the products contribution margin per building block), and on ones assumptions regarding the relationship between the products price and the number of units that can be sold at that price. The products contribution to total firm profit (i.e. to operating income) is maximized when a price is chosen that maximizes the succeeding(a) (contribution margin per unit) X (number of units sold).Psychological pricingPricing designed to have a positive psychological impact. For exa mple, selling a product at $3.95 or $3.99, rather than $4.00. There are certain price points where great deal are willing to buy a product. If the price of a product is $100 and the company prices it as $99, then it is called psychological pricing. In just about of the consumers mind $99 is psychologically less than $100. A minor distinction in pricing can make a big difference is sales. The company that succeeds in finding psychological price points can emend sales and maximize revenueDynamic pricingA pliant pricing mechanism made possible by advances in instruction technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers ranging from where they live to what they buy to how practically they have spent on past purchases dynamic pricing allows online companies to correct the prices of identical goods to correspond to a customers willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any attached airplane have paid different ticket prices for the same flight.Price leadershipAn observation made of oligopolistic avocation behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others concisely following. The context is a state of limited competition, in which a market is shared by a small number of producers or sellers. cigaret pricingPricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by publicutilities, like electric automobile and gas companies, and companies whose capital investment is high, like automobile manufacturers. Target pricing is not useful for companies whose capital investment is low because, according to this formula, the sel ling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.Absorption pricingMethod of pricing in which all be are recovered. The price of the product includes the variable cost of each feature plus a proportionate amount of the fixed costs and is a form of cost-plus pricingHigh-low pricingMethod of pricing for an nerve where the goods or services offered by the organization are regularly priced higher than competitors, but through promotions, advertisements, and or coupons, lower prices are offered on key point in times. The lower promotional prices are designed to bring customers to the organization where the customer is offered the promotional product as well as the regular higher priced products.Premium decoy pricingMethod of pricing where an organization artificially sets one product price high, in order to boost sales of a l ower priced product.Marginal-cost pricingIn line, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices last to marginal cost during periods of poor sales. If, for example, an item hasa marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would subscribe this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.Value-based pricingPricing a product based on the value the product has for the customer and not on its costs of production or any other factor. This pricing strategy is frequently used where the value to the customer is many times the cost of producing the item or service. For instance, the cost of p roducing a software CD is about the same independent of the software on it, but the prices vary with the perceived value the customers are expected to have. The perceived value will depend on the alternatives open to the customer. In business these alternatives are using competitors software, using a manual work around, or not doing an activity. In order to employ value-based pricing you have to know your customers business, his business costs, and his perceived alternatives.Pay what you wantPay what you want is a pricing strategy where buyers pay any desired amount for a given commodity, sometimes including zero. In some cases, a minimum (floor) price may be set, and/or a suggested price may be indicated as guidance for the buyer. The buyer can also select an amount higher than the cadence price for the commodity. Giving buyers the freedom to pay what they want may appear to not make much sense for a seller, but in some situations it can be very successful. While most uses of p ay what you want have been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use.FreemiumFreemium is a business model that works by offering a product or service free of charge (typically digital offerings such as software, content, games, nettservices or other) while charging a premium for advanced features, functionality, or related products and services. The word freemium is a portmanteau combining the two aspects of the business model free and premium. It has become a highly everyday model, with notable success.Odd pricingIn this type of pricing, the seller tends to fix a price whose last digits are odd numbers. This is done so as to give the buyers/consumers no gap for bargaining as the prices face to be less and yet in an actual sense are too high, and takes advantage of human psychology. A good example of this can be noticed in most supermarkets where instead of pricing at $10, it would be written as $9.99. This pricing policy is common in economies using the free market policy.Decoy pricingMethod of pricing where the seller offers at least three products, and where two of them have a similar or equal price. The two products with the similar prices should be the most expensive ones, and one of the two should be less attractive then the other. This strategy will make people compare the options with similar prices, and as a result sales of the most attractive choice will increase. ConclusionPricing strategies for products or services encompass three main ways to improve profits. These are that the business owner can cut costs or sell more, or find more profit with a better pricing strategy. When costs are already at their lowest and sales are hard to find, adopting a better pricing strategy is a key option to stay viable. Merely face lift prices is not always the answer, especially in a poor economy. more businesses have been lost because they priced themselves out o f the marketplace. On the other hand, many business and sales staff leave money on the table. hotshot strategy does not fit all, so adopting a pricing strategy is a learning curve when studying the needs and behaviors of customers and clients.Bibliography1. The Strategy and maneuver of Pricing A Guide to Growing More Profitably by Thomas Nagle 2. Power Pricing How Managing Price Transforms the Bottom Line by Robert J. Dolan 3. http//sixrevisions.com/project-management/pricing-strategies-research/ 4. http//entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy_2.htm