| Penetration Pricing |
Where a low price is set to attract volume sales & fast-growth market share, undermining competitive products by offering
significantly improved, comparative value. |
If market segments can be identified that demand greater value from lower prices. According to how well sales objectives
are met, Cascade-Up tactics can follow. |
Subject to long term strategic planning, likely to accompany 'lean' margins, this can be a fatally dangerous or highly beneficial manoeuvre. |
| Cascade Up Pricing |
Where an initial low price, delivering extraordinary value, is gently increased, within the target audience latitude of acceptance attached
to the consequent, price-induced product perceptions. |
A car manufacturer sets a low price to get a sustainable volume of car sales but increases the price over time as the market picks up
on the superior value being delivered. |
As long as value is greater than price - this tactic will not interfere with market share growth.., A proven by Toyota in the mid 70's in Australia. |
| Premium Pricing |
The price is maintained and consistently high as an indicator of 'quality' of the product. |
Examples of products and services using this strategy include Harrods, first class airline services, and Porsche. |
In the early 80's, BMW increased price to moved its perceptual positioning from medium to premium...
successfully re-establishing itself in the premium segment. |
| Skimming Pricing |
Innovative newness creates temporary premium products so prices start high. Skimming also allows control
over demand where incapacity to produce adequate volume to satisfy potential demand, this approach commands
high margins with prices that appeal to price-inelastic market segments. |
De Beers sets a huge premium on diamonds, knowing it could sell more at lower prices but choking supply to
reinforce positioning, and maximising margin. |
Long-term maintenance of skimming pricing can attract new competitors into the category or industry. |
| Cascade-Down Pricing |
An initial high price is set on launch, with a consequent series of downward price changes as product life cycle moves through
its five phases.. The objective is to maximise profits in each market phase. |
Sony reduces the price of their innovations as they age, over 5 years, charging a premium at launch and lowering the price through the life cycle. |
Consumer expectations are so entrenched that potential adopters of an innovation purposefully delay buying until initial price reductions are introduced. |
| Competition Pricing |
Setting a price relative to competitive pricing. Pricing lower, higher or the same according to competitive positioning and
value offering, general rivalry and segmentation factors. |
Pepsi and Coke charge significantly more for Cola than lesser known brands… but avoid "prisoners Dilemma" by staying non-price competitive with each other. |
The greater product meaningful differentiation, the less important competitive pricing. |
| Premium Pricing |
The price is maintained and consistently high as an indicator of 'quality' of the product. |
Examples of products and services using this strategy include Harrods, first class airline services, and Porsche. |
Inaccurate or inadequate market research can
result in sub-optimal profit generation. |
| Product Line Pricing |
Charging different prices for different products across a range of products with the same brand. |
Apple Macintosh laptops offered with different processors, storage, and screen sizes to appeal to different users. |
Products can cannibalise each other's sales. Too many options confuses & undermines intention to buy. |
| Bundle Pricing |
Offering a combination or additional products in the as a single package' which is acquired as an indivisible unit. |
Buy one and get one free (BOGOF), accommodation and flight packages, free add on promotions, etc. |
While supermarkets like BOGOF tactics, customers can be annoyed, or frustrated by them. |
| Psychological Pricing |
Research has discovered certain anomalies of various price points... Subject to an array of factors. Psychological Pricing
attempts to optimise price using known/ proven irrationalities of consumer behaviour. |
Charging $2.99 instead $3.00, writing a ticket as $3000, instead of $3,000.00, etc.. |
There is debate that these techniques have wear-out. There are also issues around ethics of Pricing. |
| Cost Plus Pricing |
The price of the product is production costs plus a set amount ("mark up") based on how much
profit (return) that the company wants to make. Although this method ensures the price covers production costs it does
not take consumer demand or competitive pricing into account which could place the company at a competitive disadvantage. |
For example a product may cost $100 to produce and as the firm has decided that their mark up will be 25%t they decide to sell the
product for $125 i.e. $100 plus 100/100 x 25 |
Ignores customer needs wants, perceptions and willingness to 'marry' perceived worth to the exchange. |
| Cost Based Pricing |
This is similar to cost plus pricing in that it takes costs into account but it will consider other factors such as market
conditions when setting prices. |
Cost based pricing can be useful for firms that operate in an industry where prices change regularly but still want to base their price on costs. |
Traditionally used in commodity and industrial marketing, where marketing expertise is absent or insignificant. |
| Value Based Pricing |
The "Total Product" has significant effect on psychology of buying behaviour, as does Product Type. Behavioural and situation segmentation
creates value-based pricing opportunities. This pricing strategy considers the value of the product to consumers rather than the how much it costs
to produce it. Value is based on the benefits it provides to the consumer e.g. convenience, well being, reputation or joy. |
You can command a premium price for an umbrella when it starts raining. Condoms are offered by vending machines in men's rooms of
night clubs. Baby formula becomes or expensive in non-traditional retail hours. BMW changed to VBP in the 80's… what have the consequences
been? Firms that produce technology, medicines, and beauty products are likely to use this pricing strategy. |
Understanding and management of segments an customer post-purchase cognitive dissonance are key issues. Is it "fair" to
charge an 'extreme' margin for a life-saving drug? Is it 'right' to sell placebo products? |
Ideally,
setting price should be straight forward.
Understanding Pricing Metrics can make profits soar! Applying
appropriate product analysis models, the 8 P's, PESTLE, 5-Forces in concert with accurate behavioural analysis of
target segments means your pricing strategies will maximise profits while sales are outperforming competition.
Price and pricing strategy is interwoven tightly with all other elements of the marketing mix... change the product and you need to
review the price (make sense?)... change the distribution, you'll also need to modify price, change the advertising means
reviewing price, so does changing processes, changing the people who support the product, changing the positioning... all demand price
strategy re-development.
