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CONTENTSoCut off pricing

oResponding to competitors price change.

o Imitating the price.

 

INITIATING PRICES (price cutoffs) :

An organization may initiate price changes to deal with new forces arising within the organization or the market. The price change may occur at both directions: increasing price or lowering prices. 

INCREASING PRICE Increasing price of a product is an attractive proposition for every business organization, since a small increase in the price results in huge increase in the revenue and profits.

LOWERING PRICE:

Several situations lead an organization to reduce the price of its products. Organizations with excess capacity try for extra sales in order to achieve higher capacity utilization rates.

Lowering price is very risky strategy. It usually invites sharp reactions from competitors and often results into a price war. Care less prices cuts may lead an organization into the following traps:

Low quality trap

Fragile market trap

Shallow pocket trap

RESPONDING TO COMPETITORS PRICE

CHANGE

Imitation is an effective way for saving time and attention in decision-making. It is a common product of bounded rationality and effort-saving heuristics. To imitate the answers of the savy and the well-informed is a low-cost strategy, especially when the task of choosing is difficult.

imitatingBoth direction Increase-Decrease