14 Pricing strategies for given situations SituationPricing strategy
§ Product is new and different (e.g. new electronic product).
§ ‘Early adopters’ are prepared to pay high prices to achieve ownership.中华考试网
§ Significant barriers to entry exist (e.g. patent protection, high capital investment, or unusually strong brand loyalty) to deter competition – in order that skimming can be sustained.
§ The product has a short life cycle so there is a need to recover development costs and make a profit quickly.
§ The business has a liquidity problem and may be attracted by the high initial cash flows available in the early stages of a product’s life.
§ Strength of demand and the sensitivity of demand to price are unknown. It is much easier to lower prices than to increase them.Skimming
§ The business wishes to discourage newcomers from entering the market.
§ The business wishes to shorten the initial period of the product’s life cycle in order to enter the growth and maturity stages as quickly as possible.
§ There are significant economies of scale to be achieved from high-volume output, and so a quick penetration into the market is desirable in order to gain those unit cost reductions.
§ Demand is highly elastic and so would respond well to low prices.Penetration
§ Use of the product requires the purchase of an additional proprietary consumable item (e.g. memory cards for digital cameras, printer cartridges for printers.)Complementary product
§ A range of products is being marketed – the products within a product line are related but may vary in terms of style, colour, quality, etc. (e.g. dinner services, cutlery sets).
§ Consumers will tend to buy a number of items within the range and be prepared to pay a relatively high price for the less essential items in order to build up a matching set.Product line
§ The sales margin is substantial, allowing good profits to be made even after significant discounting (e.g. consumer software products).
§ The product is traditionally bought on price - it is difficult to distinguish from competing products (e.g. car tyres).
§ Products with a limited shelf life (e.g. fashion items).Volume discounting
Test your understanding 14中华考试网(www.Examw。com)
1 Which pricing strategies are aimed at the start of the product life cycle?
2 Which pricing strategies seek to attract sales by offering a product at a relatively low price?
3 Which pricing strategies lure the customer in with a relatively low-priced product in order to lock the customer in to subsequent additional purchases of similar items that are relatively highly priced?
4 Which pricing strategy is appropriate to items that are bought primarily on price? |