Pricing Strategies Part 1: The Matrix

Consumer Demand Consumer demand always sets the price: if the consumer feels the price is too expensive, they may feel the value of the good or service is less It is always easier to start high and drop the price to increase the perceived value than to increase later and risk the value being lost

Consumer Demand Price is sensitive, meaning that fluctuations in price cause fluctuations in demand (the basis of economics)

Pricing Strategies There are four pricing strategies to consider: Economy Pricing Penetration Pricing Price Skimming Premium Pricing

Economy Pricing Costs of both manufacturing and marketing are kept to the minimum Prices are the lowest possible as a result

Penetration Pricing Introductory prices are kept intentionally low in order to gain market share Once the customer is enjoying the good or service on a regular basis, the price can increase

Price Skimming Companies exploit their competitive advantage by starting with a high price to match their rarity High prices = high income, and competitors will enter the market for a portion of that initial profit More competitors increases the supply, and so the price drops to keep the product competitive

Premium Pricing The uniqueness of the product allows the producers to keep the price high Usually, there is a substantial competitive advantage that allows the higher price to be accepted in the market Premium pricing is usually associated with luxury items

Pricing Strategies Matrix

Additional Pricing Policies use your textbook to define the terms on worksheet I