Market-based Pricing Principles. Key Pricing Tactics for Profit Maximization. Penetration Pricing. Skimming Pricing.

December 2, 2009 by kutenk
Filed under: Sales and Marketing 

15814-fullsize

Market-Based Pricing
Market-based pricing emphasizes price as a variable element of the marketing mix. Its concern is how it can affect the company’s position in the marketplace. Value is included in this notion of price, and the underlying marketing theme is to set prices at ‘what the market will bear’.
Profit maximization is natural in marketing, but it is not feasible to do this on all products/services amongst all customer groups. Companies can employ many pricing tactics that might promote sales yet reduce margins in the short term. The general objective might be profit maximization, but the company’s product mix should be examined in terms of individual items, and price tactics applied individually, rather than singular pricing decisions applying to the complete range. Prices should adopt a customer focus, and this will determine whether the product is bought or not.
Although the assumption behind market-based pricing techniques is that prices are a major factor in achieving competitiveness, this can also be attained through non-price competition. Market share can be improved through customer care, the delivery of value for money, quality and high levels of service (response, delivery and after-sales service).
The main market-based pricing techniques are described below.

Penetration pricing
Penetration pricing involves setting prices at a sufficiently low level to make them attractive to the mass market. The aim is to achieve high initial sales, which are maintained during the life cycle of the product. An associated aim is to deter competitors. Penetration pricing is particularly appropriate for products where unit cost reductions can be achieved through initial mass production.
Setting-up costs are usually high and initial development costs are recovered over a long period. The task of marketing is to ensure that customers retain interest during the life of the product.

Skimming
A skimming approach adopts a high-price strategy, charging what the market will bear. The aim is to ’skim the cream off the market’. This policy is particularly attractive to a company with a new and unique product. When the cream has been skimmed, prices can be progressively reduced.

Perceived value pricing
Perceived value pricing determines prices from assumptions made about the beliefs that consumers have of the value of the product to them. These assumptions may be founded on market research aimed at establishing in buyers’ minds values about the basic product and the various special features in the product that appeal to them.
If the company charges more than the buyer-recognized value, sales will suffer. Revenue may also fall below attainable levels if prices are lower than the perceived value.

Psychological pricing
Many consumers use price as an indicator of quality. Prestige pricing uses higher prices to promote the idea of value and status.
Price levels can be set just below a round figure, for example £9.99 rather than £10.00. These pricing points, as they are called, persuade people to think that the price is in a lower range than they expected.
Value for money can be emphasized by the effective presentation of discounts and free offers. The perceived value of offering one item free if four items are purchased may have a greater impact than a 20 per cent discount offered over the whole five purchases.

  • Share/Bookmark

Related posts:

  1. Competitor-Related Pricing Systems. Competitive Pricing Strategy. Discount Pricing Strategy.
  2. 4 Key Accountant’s Approach to Pricing. Establish Right Pricing Policy for your Products and Services.
  3. Pricing for Profit: How to Command Higher Prices for Your Products and Services | by Dale Furtwengler | 2010 | ISBN: 9780814415177. Selling Styles Mirror Buying Habits. Bundling for Greater Profits. The Right Way to Lower Prices. Avoiding Price Competition
  4. Go-To-Market Strategy: Advanced Techniques and Tools for Selling More Products, To More Customers, More Profitably | by Lawrence G. Friedman | ISBN: 9780750674607. PRINCIPLE OF GO-TO-MARKET SUCCESS. THE FOUR PITFALLS OF MARKET TARGETING. The Integrated Multi-Channel Model
  5. Marketing Strategy: The Difference Between Marketing and Markets, Third Edition | by Paul Fifield | ISBN: 9780750656757. Internal Business Drivers. Competitive Business Strategy Development. What Makes a Good Market Objective? From Marketing Strategy to Tactics.
  6. Strategic Asset Allocation in Fixed Income Markets: A MATLAB-Based User’s Guide | by Ken Nyholm | ISBN: 9780470753620. Fixed Income Investment Books. BOND PRICING Techniques. Investing in Bonds.
  7. A Short Course in International Economics: Understanding the Dynamics of the International Marketplace, 3rd Edition | by Jeffrey Edmund Curry | 2009 | ISBN: 9781885073532. Key Economic Systems. Microeconomics Principles. Macroeconomics Principles
  8. Win-Win Negotiation Tactics – Part 7
  9. Middle Market Strategies: How Private Companies Use the Markets to Create Value | by Richard M. Trottier | 2009 | ISBN: 9780470464571. Marketing Books. Capital Market Segmentation. Winning the Middle Market
  10. Beat the Odds in Forex Trading: How to Identify and Profit from High Percentage Market Patterns | by Igor Toshchakov | ISBN: 9780471933311. Currency Trading Books. Money Management Rules and Techniques. Forex Success Tips. Basic Trading Strategies and Techniques
  11. Managing Employee Performance and Reward: Concepts, Practices, Strategies | by John Shields | ISBN: 9780521820462. Competency-Based Human Resource Management. Motivation Management. Performance Review and Development. Job-Based, Skill-Based and Competency-Based Pay Systems. Executive Incentives.
  12. Win-Win Negotiation Tactics – Part 1
  13. Upstarts: How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit from Their Success | by Donna Fenn | 2010 | ISBN: 9780071601887. Personal Finance Guide. Social Entrepreneur Resources. Strategic Partnerships for Profit. A Social Networking Niche.
  14. Estimating Market Power and Strategies | by Jeffrey M. Perloff, Larry S. Karp and Amos Golan | ISBN: 9780521804400. MEASURES OF MARKET PERFORMANCE. A MODERN STRUCTURE–CONDUCT–PERFORMANCE APPROACH. Linear-Quadratic Model. New Econometric Methods
  15. Investing in Growth Companies. Mutual Funds Manager Guide to Profitable Investment. Invest in Companies that turn an innovative idea into a consistent profit generating business.
  16. The unprofitable way of shopping.
  17. Innovation, Product Development and Commercialization: Case Studies and Key Practices for Market Leadership | by Dariush Rafinejad | ISBN: 971932159707. Best Practices for Product Development Managers. Product Development Process. SOFTWARE PRODUCT DEVELOPMENT.
  18. Research Study from Behavioral finance and Neuroeconomics. The Futility of Forecasting due to the incredible complexity of the stock market.
  19. Emerging Markets: Lessons for Business Success and the Outlook for Different Markets | by Nenad Pacek and Daniel Thorniley | ISBN: 9781861978431. Economist Book. How to Interpret Economic Indicators. Why Companies Fail? Market Entry Preparation. Market Research and Business Intelligence
  20. Brand Busters: 7 Common Mistakes Marketers Make—Lessons from the World of Technical and Scientific Products | by Chris Wirthwein | ISBN: 9780980174502. Three Classic Rules of Great Marketing. Wants-Based Marketing. Marketing Your Brand. How to Become a Really Good Marketer in About a Minute
  21. RFID in Tracking & Monitoring: An In-depth Product & Service Analysis with Case Studies | Mind Commerce | 2009 | RFID Based Solution Implementations. RFID Based Vehicle Immobilization. RFID in Process Manufacturing. RFID Based Tracking in HealthCare. RFID in Marine Operation. RFID in Payment Transactions
  22. The Business Plan Workbook: The Definitive Guide to Researching, Writing Up and Presenting a Winning Plan, 6th Edition | by Colin Barrow, Paul Barrow and Robert Brown | ISBN: 9780749452315. Plan for Market Research. Developing Competitive Business Strategy
  23. Key Negotiation Skills. Negotiating for Business Success with Win-Win Negotiation Tactics – Part 11
  24. Key Negotiation Skills. Negotiating for Business Success with Win-Win Negotiation Tactics – Part 14
  25. Trading Tips for Option Traders and Short-Term Traders. Stock Trading for Profit and Success. Investment tactics for stock traders.
  26. Rethinking Retention in Good Times and Bad | by Richard P. Finnegan | 2010 | ISBN: 9780891062387. How To Retain High Performers During Layoffs. Developing an Employee Value Proposition (EVP). How To Strengthen Employment Brand. Ways to Hiring and Retaining Older Workers. Top Retention Tactics, Principles and Strategies.
  27. Optimization Methods in Finance | by Gerard Cornuejols and Reha Tutuncu | ISBN: 9780521861700. Asset Pricing and Arbitrage. Structuring Asset-Backed Securities. Finance Portfolio Optimization. Conic Optimization Models in Finance. Constructing an Index Fund
  28. Rain Making—Attract New Clients No Matter What Your Field, 2nd Edition | by Ford Harding | ISBN: 9781598695885. Marketing Books. Marketing Tactics. Download PDF EBook.
  29. Win-Win Negotiation Tactics – Part 8
  30. RFID in Tracking & Monitoring: An In-depth Product & Service Analysis with Case Studies | Mind Commerce | 2009 | RFID Based Solution Implementations. RFID Based Vehicle Immobilization. RFID in Process Manufacturing. RFID Based Tracking in HealthCare. RFID in Marine Operation. RFID in Payment Transactions.
  31. INVESTING FOR SAFETY Options – Bank Deposits, Money Market Mutual Funds, Short-Term Treasury Securities
  32. Win-Win Negotiation Tactics – Part 5
  33. Corporate Resiliency: Managing the Growing Risk of Fraud and Corruption | by Toby J. Bishop and Frank E. Hydoski | 2009 | ISBN: 9780470405178. Principles of Fraud Risk Management. Fraud and Corruption Avoidance Strategies and Tactics. Anti-Fraud Controls.
  34. The Business-Oriented CIO: A Guide to Market-Driven Management | by George Tillmann | ISBN: 9780470278123. IT Strategy and Planning. IT Governance. IT Portfolio Management. Customer Management. Market Intelligence. Service-Offering Management. IT Performance Management
  35. Three Moves Ahead: What Chess Can Teach You About Business (Even If You’ve Never Played) | by Bob Rice | ISBN: 9780470178218. Business Strategy Books. Classic Chess Tactics. Principles of Chess Defense
  36. Principles of Software Development Leadership: Applying Project Management Principles to Agile Software Development | by Ken Whitaker | 2010 | ISBN: 9781584505860. 7 Deadly Habits of Ineffective Software Managers. Project Procurement Best Practices. Agile Software Development Methodology
  37. Secure, fast, reliable Web Hosting for the US, UK and Australia market.
  38. Mergers & Acquisitions: An Insider’s Guide to the Purchase and Sale of Middle Market Business Interests | by Dennis J. Roberts | 2009 | ISBN: 9780470262108. Psychology of M&A Negotiations. Basic M&A Marketplace Valuation. M&A Taxation Issues. Postmerger and Acquisition Failures
  39. Distribution Channels: Understanding and Managing Channels to Market | by Julian Dent | ISBN: 9780749452568. How to Sell to Distributors. How the Distributor Business Model Works. How to Sell to Final-Tier Trade Channel Players. How the Retail Business Model Works. How to Sell to Retailers
  40. Tough Tactics for Tough Times: How To Maintain Business Success in Difficult Economic Conditions | by Patrick Forsyth and Frances Kay | 2009 | ISBN: 9780749455217. Business Success Books.

Tags: , , , , , ,

Comments

Tell me what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!

You must be logged in to post a comment.