Pricing Strategies What is the best price for my product?
Pricing Questions • What is the perceived value of the good or service by the customer? • Are there any similar products on the market? • What price is the competition asking?
Pricing Strategies • Cost plus • Follow the Competition • Penetration • Skimming • Psychological • Loss-leader
Cost-Plus Pricing • Selling Price = Unit Cost + Markup • Markup % = Selling Price – Unit Cost X 100 Unit Cost • Margin = Selling Price – Unit Cost • The adding of a Markup to the cost ensures a profit
Follow-the-Competition • Price equal to or just below the competition • Watch costs relative to price to ensure profit.
Penetration Pricing • New product or service priced significantly below competition • To win market share • If sales volume is large, profit can be high.
Skimming • When no or limited competition • High price set • Watch for competitors moving in!!
Psychological Pricing • Prices appear less than they really are • Eg. $299.98 vs. $300.00 • $9.99 vs. $10.00 • Now $4.96 vs. $4.99
Loss-Leader Pricing • Selected products or services sold at cost or less • To attract customers who will make other purchases too • This hopefully will more than compensate for the losses on “leader” • “Door Crasher” Sales