What are the Types of pricing strategies?

Answer 1

Cost plus pricing

The most common way for businesses to decide on a price.

Add up the cost of the raw materials and labour that have gone into making the product to determine its cost. Then add on an element of profit over and above the cost mark up

Competitor based pricing

Firms have to charge similar prices to other firms.

This happens when there is lots of choice and not much product differentiation e.g. petrol, CDs

Promotional pricing

Sales

Special offers

Final reductions

Buy one get one free!

Used to increase sales in the short term, in order to clear space for new lines, undercut a rival or clear stock that is no longer in demand.

Penetration pricing

Setting an initial low price - to get consumer interested.

When this low price is below cost it is called loss leading.

Once established the price will increase.

Example - collectors magazines

Price discrimination

Charging different prices to different consumers for the same product.

Example is rail/bus travel for students and OAPs

Skimming

Opposite to penetration pricing

Firms charge a high price to begin with which helps to make the product desirable.

Once established firm will lower the price.

Example - digital TV, MP3 players