Should take into account:
- Fixed and variable costs
- Company objectives
- Proposed positioning strategies
- Target group and willingness to pay
Penetration Pricing: businesses set a low price to increase sales and market share. Once the market share has been captured the firm may then increase the price.
Skimming Pricing: Businesses set an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer.
Price Leaders: Market leaders whose market share is so strong that its prce changes are closely followed by rivals.
Price Takers: A business has no option but to charge the ruling market price.
Phychological pricing: to appeal to custmers who use emotional rather than rational responses to pricing messages.
Loss Leader: a product priced eow cost price in order to attract consumers into a shop or online store. The purpose of making a product a loss leader is to encourage customers to make further purchases of profitable goods while they are in the shop.
Influences on Pricing:
- Competitors actions
Measuers the responsiveness of demand after a change in price.
- 0; inelastic, demand does not change at all when the price changes.
- Between 0-1; demand is inelastic
- 1; elastic,
- Bigger than 1; demand responds more than proportionately to a change in price, demand is elastic.
Factors effecting price elasticity
- Number of substitutes
- Cost of switching between products
- Degree of necessity
- Habitual consumption
- Peak and off peak times
Use of PED
Can use it to predict:
- The effect of a change in price on the total revenue and expenditure of a product
- The price volatility in a market following changes in supply-this is important for commodity prodcuers who suffer big price and revenue shifts from one time period to another.
- The effect of a change in an indirect tax on price and quantity demanded
- Can be used as part of price discrimination. This is where a supplier decides to charge different prices for the same product to different segments of the market
- Usually charge a higher price to consumers whose demand for the product is inelastic