Pricing strategy

Pricing strategies and policies
Made by:
Solovyeva Tatiana
Tamara Stjepanovic Downer

Pricing
• Pricing is the process of determining what a company
will receive in exchange for its product.
• Pricing factors are manufacturing cost, market place,
competition, market condition, brand, and quality of
product.
• Pricing is also a key variable in microeconomic price
allocation theory.
• Pricing is a fundamental aspect of financial modeling and
is one of the four P’s of the marketing mix.

List Price – what the customer pays
• Physical good/service
• Assurance of quality
• Repair facilities
• Packaging
• Credit
• Warranty
• Delivery

Pricing Objectives
• Profit-oriented: profit maximization, satisfactory
profit, target return on investments
• Sales-oriented: to get specified share of the market
(market share, market maximizzation)
• Status quo-oriented: maintain stable prices/
competitor activity (especially if satisfied with
present situation). Existing or meet competitors

Influence on Pricing Policy
Pricing policy is generally affected by four major players:
• consumer preferences and attitudes
• government policy and legislation
• manufacturers and wholesalers business practices
• competitors marketing efforts

Other factors that influence the price of a product include:

Pricing strategies
1. Cost-based pricing
2. Customer-based pricing
3. Competitor-based pricing
4. Product-based pricing
5. New product-based pricing

• Cost plus pricing
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• Full-cost pricing
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• Target profit pricing
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• Marginal cost pricing
A fixed percentage of profit will be
added to the cost and it will be taken by
manufacturer, wholesaler and retailer.
It is also called mark-up pricing.

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Setting price in order to cover both
fixed and variable cost. Total cost
will be computed by adding variable
and fixed incurred in the product.
The price of each product is
dependent on costs it creates.
It is also called absorption cost
pricing.

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Setting price to target specified
profit level. It estimates of the cost
and potential revenue at different
prices and the break-even has to
be made. It is possible when there
is no competition in the market.
It is also called break-even pricing.

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• Marginal cost pricing Price is fixed on the basis of
additional variable cost associated
with an additional out put. The
travel industry often employs
marginal pricing to fill capacity.

• Predatory pricing
• Odd pricing
• Psychological pricing
Predatory pricing (known as
aggressive pricing or "undercutting"),
intended to drive out competitors
from a market. Prices are
deliberately set very low by a
dominant competitor in the market in
order to restrict or prevent
competition. The price set might
even be free, or lead to losses by the
predator. Predatory pricing is illegal
under competition law.

• Odd pricing
The seller tends to fix a price
whose last digits are odd numbers.
The customer perceives the price to
be lower than it actually is. Odd
pricing refers to a price ending in
1,3,5,7,9 just under a round
number, such as $0.19, $2.47, or
$64.93. Even pricing refers to a
price ending in a whole number or
in tenths, such as $0.20, $2.50,
$65.00.

• Odd pricing
Pricing designed to have a positive
psychological impact. For example,
selling a product at $3.95 or $3.99,
rather than $4.00. There are certain
price points where people 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. The aim of
psychological pricing is to make the
customer believe the product is
cheaper than it really is. Pricing in
this way is intended to attract
customers who are looking for
“value”.

• Going rate pricing
• Follow the leader
• Loss leaders
Setting a price that is in line with the
prices charged by direct competitors.
A company bases its price on
competitor’s prices, with less attention
paid to its own costs or to the demand.

• Loss leaders
Setting the price of product and
service to be the same as its
largest competitor. A follow-the-
leader price strategy can entail
either raising or lowering the price.
The competitor may choose to
counter this strategy by continually
raising and lowering prices to make
matching difficult. Setting the price
according to its largest competitor.
This type of pricing strategy does
not work for businesses of all sizes.

• Loss leaders A loss leader or leader is a product sold at
a low price (at cost or below cost level) to
stimulate other profitable sales.
This would help the companies to expand
its market share as a whole.

• Product line pricing
• Optional-product pricing
• Captive-product pricing
• By-product pricing
• Product-bundle pricing
Setting price steps between
line items and fixed price for
product lines, not products.
It is the use of limited
number of prices for all
product offerings of a
vendor.

Pricing optional or
accessory products sold
with the main product.

Pricing product that must
be used with the main
product. Price is usually
higher than the price of
the main product in
order to overcome the
low profit earned on the
main product.

Setting prices for by product
obtained from the original
product which sets a way to
sustain competitive pressure
on the original product. Pricing
of low-values of by-products in
order to get rid of them.

• Product-bundle pricing Pricing bundles of the related
products sold together.
Common in fast food
industry.

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• Penetration pricing
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• Skimming pricing
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• Premium pricing
Setting a low price for a new
product in order to attract a
large number of buyers and
enlarge market share.

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• Premium pricing
Setting a high price for a new
product to skim maximum
layer by layer from segments
willing to pay the high price.
Company makes fewer but
more profitable sales.

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• Premium pricing
Keeping the price of a product
or service artificially high in
order to encourage favorable
perceptions among buyers,
based solely on the price. It is
also called prestige pricing.

Thank you for
your attention!

Pricing strategy

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