Pricing Strategies

Pricing Strategies

3 main approaches a business would take to set a price:

• Cost-based pricing: price is determined by adding a profit element on top of the cost of making the product.

• Customer-based pricing: where prices are determined by what a firm believes customers will be prepared to pay.
• Competitor-based pricing: where competitor prices are the main influence on the price set.

  Cost based pricing

It Involves setting a price by adding a fixed amount or percentage to the cost of making or buying the product.

Customers are not too bothered what it cost to make the product because they are interested in what value the product provides them.

Cost plus ( or mark up) is widely used in retailing, where the retailer wants to know with some certainty what the gross profit margin of each sale will be. The advantage of this approach is that the business will know that its costs are being covered. But the main disadvantage is that cost-plus pricing may lead to products that are priced un-competitively.

Customer based pricing

Penetraition pricing.

The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new…