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THE MARKETING MIX
PRICING STRATEGIES Mobile Edition

Related Links: Pricing | Place | Promotion | Service Marketing Mix | Emarketing Mix

Introduction

Pricing is the most important element of the marketing mix, as price is the only element of the marketing mix, which generates a turnover for the organisation. The remaining elements of the 4Ps cost firms money.

Marketing Mix Product - It costs to produce and design a product

Marketing Mix Place - It costs to distribute a product and

Marketing Mix Promotion - It costs to promote products.

Marketing mix Price must support the other three elements of the marketing mix. Getting Pricing correct can be tricky; pricing must reflect supply and demand relationship and Pricing a product too high or too low could mean a loss of sales for the business.

Pricing Factors

Pricing strategies should take into account the following factors into account:

  1. Fixed and variable costs.
  2. Competition
  3. Company objectives
  4. Proposed positioning strategies.
  5. Target group and willingness to pay

An organisation can adopt a number of pricing strategies, the pricing strategy will usually be based on corporate objectives.

 

pricing strategies

 

Types of Pricing Strategy

  Pricing Strategy Definition Example  
Penetration Pricing Here the organisation sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price. A television satellite company sets a low price to get subscribers then increases the price as their customer base increases.
Skimming Pricing The organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer. A games console company reduces the price of their console over 5 years, charging a premium at launch and lowest price near the end of its life cycle.
Competition Pricing Setting a price in comparison with competitors. Really a firm has three options and these are to price lower, price the same or price higher than competitors. Some firms offer a price matching service to match what their competitors are offering. Other firms may take this further by refunding the customer more money than the difference between their product price and the lower price offered by the competitor firm.
Product Line Pricing Pricing different products within the same product range at different price points. An example would be a DVD manufacturer offering different DVD recorders with different features at different prices e.g. A HD and non-HD version.. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximising turnover and profits.
Bundle Pricing The organisation bundles a group of products at a reduced price. Common methods are buy one and get one free promotions or BOGOFs as they are now known. Within the UK some firms are now moving into the realms of buy one get two free can we call this BOGTF i wonder? This strategy is very popular with supermarkets who often offer BOGOF strategies.
Psychological Pricing The seller here will consider the psychology of price and the positioning of price within the market place The seller will therefore charge 99p instead £1 or $199 instead of $200. The reason why this methods work, is because buyers will still say they purchased their product under £200 pounds or dollars, even thought it was a pound or dollar away. My favourite pricing strategy.
Premium Pricing The price set is high to reflect the exclusiveness of the product. Examples of products and services using this strategy include London department store Harrods, first class airline services and Porsche.
Optional Pricing The organisation sells optional extras along with the product to maximise its turnover. This strategy is used commonly within the car industry as I found out when purchasing my car. 
Cost Plus Pricing

Cost plus pricing sets the price of the product by adding a set amount (mark up) to the production costs. The mark up is based on how much profit that the firm want to make. Cost plus pricing ensures that the costs of production are covered but it could place the company at a competitive disadvantage as it fails to consider consumer demand or competitor pricing.

For example a product may cost £100 to produce and as the firm have decided that their profit should be 20% they set the product's price at £120.00 (£100 plus 100/100*20)
Cost Based Pricing Cost based pricing is similar to cost plus pricing as it is based on costs of production and marketing but it will build in additional factors such as market conditions to set pricing.

Cost based pricing can be useful for firms who want to base their products on costs but operate in an industry where product pricing changes regularly (volatile pricing).

Pricing Strategies Conclusion

There a number of pricing strategies to choose from. Firms will need to select one that suits their product type, industry, target market and product life cycle stage for pricing such as penetration pricing and skimming pricing .

Pricing Strategies YouTube Video

Check out our YouTube video about pricing strategies.

 

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