Pros and Cons of pricing strategies

Cost-plus pricing

Pros:

  • Ensures variable (direct) costs are covered.
  • Easy to calculate

Cons:

  • Ignores competitors & market conditions.
  • Doesn't include fixed costs
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Price skimming

Pros:

  • Recover the costs of research and development.
  • Maximize profits.
  • Encourages customers to buy due to quality (brand)

Cons:

  • Product has to be price inelastic.
  • Customers will wait till price goes down.
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Penetration

Pros:

  • Cheap pricing - demand can be high and higher sales decrease production costs

Cons:

  • May not breakeven
  • Competitors may have cheaper costs thus cheaper price
  • Cheap price = perception of bad quality
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Predatory

Pros:

  • Good for selling stock which wouldn't sell.
  • Excellent in braking into new market.
  • Destroys competition

Cons:

  • Illegal
  • May not breakeven
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Competitive

Pros:

  • Avoids price wars.
  • Safe - lack of high risks

Cons:

  • Competitive advantage ( which might cost in the long term).
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Psychological

Pros:

  • Customers will attach more importance to a product if the price is lower in terms of perceptions.

Cons:

  • Some customers will ignore the pricing strategy due to them being rational.
  • It can be difficult for cashiers to calculate the total amount owed when fractional prices.
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