Pricing Strategies

The Marketing Mix

When two or more companies are producing the same product or service in the same market, they are in direct competition.

The marketing mixcan become the difference in success or survival.

The Marketing Mix “4 Ps”

•Product (Is there a market for the product? Are there already similar products? How much would people pay? What size should it be? What should it look like?

•Price (What price should the product be?)

- “Pricing Strategies”

•Place (Where to sell the product?)

•Promotion (Advertise or promote?)

What is a Pricing Strategy?

• A Pricing Strategy is all about selling a product at the right price

• Companies might want promote a product or increase the amount of its sales

How prices are set to reflect organization,s objectiveThere are many ways how a company

decides what the price of a product will be.

Listed below are just five different strategies:

• Cost-Plus Pricing

• Penetration Pricing

• Skimming

• Destroyer Pricing

• Value Pricing

Cost-Plus Pricing

• Average Cost of making the product + a mark up

This may be the approach of small businesses who are not market driven.

Cost-Plus Pricing

• Has also been used by large companies

securing contracts with the US Government. Although this method has been criticised for wasting taxpayers money.

• Example: The US Government took on “Cost-Plus” contracts from construction companies after Hurricane Katrina.

Penetration Pricing

• A company will initially set a low price to attract customers. As the demand for the product rises, the company will raise the price.

• Example: Nestle Ice Cream Snacks

Skimming

• Where a product is sold at a high price –high profit per product but low sales overall.

• This is usually the approach of Electronics companies.

• Example: HD TVs

Destroyer Pricing

• Where companies will drive prices so low that competitors can’t compete.

• Example: Microsoft have been accused of this by offering “free” gifts with its operating system (Windows Media Player and Internet Explorer). This is pricing competitors out the market.

Value Pricing

• Prices will be set at the apparent value of the product.

• Example: status products, designer brands