Top 8 Popular Pricing Strategies Examples
It can be incredibly risky to go into our business studies without full knowledge of the different pricing strategies that firms might use.
Some of the different popular pricing strategies that organizations utilize and looking at are why we might use them.
Popular Pricing Strategies Examples
Price Penetration Strategy
Price penetration is where you launch our products at a low price, and then, over the course of times, the product moves to product lifecycle, you may gradually increase that price.
We would use ah price penetration strategy because we are looking to try and capture some market share.
Some markets are incredibly competitive and very difficult to break into. One of the reasons that make it difficult to penetrate is that consumers are already brand loyal to a different product.
Consider markets such as the cosmetics market, where consumers are shopping for lip gloss, foundation, mascara, and other such treats; most consumers will already have a brand that they are loyal to when they’re in the shops. They’re looking to purchase one of these products; they already know the company they want to buy.
If we’re a new player in this market and looking to try and penetrate and catches from customers, we’ve got to give consumers a reason to change their decision while they are shopping. Penetration pricing strategy might just be that reason if they’re scanning the shelves and looking for the product, they went in there for, but they see our product alongside at a significantly lower price. We might convince them to do one of two things because our product is cheaper than everything else on the market. There might just buy our product to try rather than the brand they went into the store for.
Either way, we’re going to get them to try a product that they won’t have been familiar with or brand loyalty.
Once we’ve got consumers to try out our product, the penetration pricing strategy works once we’ve captured some market share. We have some initial sales as that product starts to progress through its lifecycle are, we start to benefit from some brand loyalty and repeat customer.
We might sneak the price up periodically because now we’ve got our group of consumers arriving in-store hunting for our product on will be prepared to pay on the ever-increasing price for it now.
Price Skimming Strategy
The opposite strategy is what’s known as price skimming. Rather than try and capture market share with this strategy, we’re trying to maximize sales revenue.
If we’ve got a brand that people may have purchased before, if we’re launching a product that is maybe a new version or an update to something we’ve released previously, maybe it’s an updated phone. We’ve got others in our portfolio from history; maybe it’s a games console that’s an update to other games consoles we’ve sold over the past decade or two. There will already be some buzz that would already be some anticipation from this.
Consumers will already have expectations for the product. There will be some consumers there who will be so desperate to purchase it on the day of its launch that they will be prepared to pay a premium.
They’re going to be some customers who will be so eager to get their hands on it that they may even pre-order. It’s at a very high price.
If we’ve got those consumers out there that are so desperate to get their mittens on our products that they’re prepared to pay a high price, we may as well launch at that price maximize the revenue that we can recoup from those customers, knowing that we’re going to alienate some customers with that high price but as we move through the life cycle and as our products become older on may be newer products are launched onto the market place that might be superior to ours, we can love our price gradually over time
Skimming off layers of customers that I will only be prepared to pay lower prices for this product, so we’ll get their custom eventually. We just won’t have it straight away whilst we are targeting those customers prepared to pay a premium for the product. This is a great strategy for maximizing sales revenue that we make per customer.
Competitive Pricing Strategy
Another pricing strategy might be to launch what’s called competitive pricing. This is where we pitch our price at a similar level, not necessarily precisely the same. Still, a similar level to other products on the market, what we’re trying to do, we’re trying to take price out of the equation when consumers make those purchasing decisions.
We’re going to try and do that to make consumers base their decision on some other aspect of marketing, such as the quality of the product, such as the place strategy, maybe the promotions, and not on price because we’re pitching out the price at a similar level.
Two others; competitive pricing; there are two different approaches that we might take. We might be the market leader, the big firm in that industry, that other firms look to imitate our prices.
If that’s the case, we called the price maker in the market, the firm that others look to.
For example, in the petrol market, there are individual petrol stations that others looked to. When they alter their prices, those subsidiary firms will also consider changing their prices to those other firms on what we call the price takers.
They’re not setting the price in the market there a smaller organization, but they want to try and remove prices, which consumers are putting into their purchasing thinking. So as the price maker changes their price, the price taker will adjust heirs accordingly.
Predatory Pricing/ Destroyer Pricing Strategy
Sometimes you might see this referred to as destroyer pricing as well. This will be used by firms who are confident that they condone drive other firms out of the marketplace.
With destroyer pricing, we pitch out products at a very low level at a level that we think are rivals might be able to match in the short term. But they are not going to be able to sustain selling at this low price for as long as we are.
It almost leads to firms getting involved in what’s called a price war where they’re trying to outdo each other in terms of low prices very beneficial from consumers price wars, but not so much for the firm’s because they’re damaging each other’s profits on profit margins.
But if you’re looking to try and reduce some of the competition in the industry you’re operating, maybe you’re looking to try and erect some greater barriers to entry to prevent new entrance charging very low prices for a period of time will force other firms that can’t sustain those low prices to leave the market and go and do business elsewhere on once we force them out of the market, then we might be able to catch a greater market share, maybe increase our prices back up again, having eliminated one or several of our competitors from the market place.
Loss Leadership Strategy
Another cheeky little pricing strategy is to use what’s known as Los Leadership. This is where we got quite a broad product portfolio. Supermarkets might use this sporting goods retailer might use this.
Most of the products in that portfolio we will sell at profitable prices will pick and critical product offerings from our portfolio of goods. We will sell them at a lower cost, lower price, than it has cost us to either produce that product will buy that stock in, so every time we’re selling one of those items actually cost the firm money.
But we’re doing this for a very specific reason because we’re trying to pick key products to sell as loss leaders that are really going to capture the attention of our market and draw customers into our business.
We’re hoping for why they’re at our store using our business, purchasing those loss-leading products, putting other items in their shopping baskets that we will make a profit on.
It may be that we capture customers coming to our business, there aren’t usually customers of as they’re usually loyal to another rival, but by selling those key products at a loss, we might just get people to change their consumption patterns, shop with us for the first time, we can sell them other profitable items whilst they’re here, and if they like their shopping experience with us, they may even return next time.
The kind of things that we might sell as loss leaders is that grocery stores supermarkets may pick some product from their really stable portfolio that consumers will buy regularly, Sell them on the last drag consumers in there knowing that they’re not going to go in there just for that one item They’ll do a for weekly shop whilst they’re there So on the one product, we might make a loss. But on the trolley of goods, over a win making a profit. So that’s our loss-leading strategy.
Psychological Pricing Strategy
It’s a strategy that we might use alongside some of our other pricing strategies, such as skimming, perhaps, or maybe even penetration.
Psychological pricing is trying to give the appearance that our products are greater value, more of a bargain than they may necessarily be by psychologically ending our price in an odd number.
Rather than charging a pound for a product, we just price it at $99. It means consumers on budgets who are looking to make cost savings and are looking to try and make purchases that they feel like they have one with, and they’ve elicited some kind of bargain from the organization.
It has this psychological effect on most consumers of making them feel like they’ve made a saving like they’ve gone within their budget after the firm.
It does mean that they make slightly less revenue per sale, so they might make £995 rather than £1000, so they’ve lost out on £5 of revenue there, but it might just be that knocking that £5 off, which may only be a sort of a minor loss to the organization is what captures extra customers.
We lose out on revenue per sale, but we attract so many extra customers we make greater total revenue.
Pricing Discrimination Strategy.
Pricing is charging different market segments different amounts for the same product or service that they’re experiencing. So, cinemas will sell seats to see a film at different prices, depending on consumers’ age. Children may pay a lower price than an adult PWD may pay discount bars and nightclubs may charge certain genders are my charged ladies less for a drink than they will charge males, so they’re discriminating against some of their customers.
But knowing that if they can attract that market segment to their business, they might be drawing in customers that they might otherwise have lost.
If football clubs didn’t offer PWD a discount, they might not get them a tall it’s better to sell them the product at a reduced rate than miss out on their custom altogether.
Dynamic Pricing Strategy
That’s where we charge different prices to different consumers, depending on their willingness to pay those different prices, it might be the consumers who want to buy the product early.
We might give some kind of discount to customers who buy the product earlier, and when closer to the deadline, we might charge more.
For example, most airlines use dynamic pricing where depending on which day or which month you purchase to see on the plane, you will have paid a different price to everybody else.
Hotels might run dynamic pricing schemes where if you book the hotel room very, very early, you get it at the lowest price.
On the closer you leave it to your stay, the higher the price you might pay, so you could be next door to people are either sat on a plane or in a hotel.
Who, experiencing exactly the same product as your aunt, have paid a completely different price based on the timing of their purchase and their willingness to pay different prices?