Pricing Techniques

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Introducing a NEW product or service

When introducing a new product or service, two approaches could be followed: price skimming and penetration pricing. Price skimming is setting a high price to skim maximum revenues for people willing to pay. The result is fewer but more profitable sales. As sales slow and competitors enter the market, price is lowered to draw in the next price sensitive buyers. Personal computer manufacturers used this method when first introducing the PC to the general population.

Penetration pricing is the setting of low initial prices to achieve sales quickly and to attract a large number of buyers. This is used when the market is price sensitive or where a low price might keep out the competition.
Image and psychological pricing

As previously mentioned, the prices charged for products or services convey images to the customer. Many consumers equate price and quality and, in some cases, can be enticed into buying at higher rather than lower prices. Thus, a prestigious jewellery store can sell items at a higher price than a department store jewellery counter. Stores following low price policies may not attract some people. These consumers will not buy low price products or services, as they may equate low price with low quality and/or lack of service components they value.

Other elements of psychological pricing include multiple pricing and odd pricing. Items will generally sell better if offered in multiple units (3 for 99¢) rather than in single units (30 cents each) and odd pricing, $49.95 instead of $50. However, some stores do not adjust prices in this manner; as they feel it contributes to a low quality “bargain” image.

Loss leader pricing

Supermarkets and department stores often use this pricing strategy. It involves selling a few items at low prices (even at a loss) in order to attract customers to the store. This strategy presumes consumers will purchase not only the loss leader items but other products and services as well.