Customer oriented pricing

• This is pricing based on the demand for the product and customer’s perceptions of the product’s value
• Various techniques are used
• Perceived value pricing-is where the price is chosen to position the product in the market
• A price is chosen which is consistent with the image of the product
• This price is chosen specifically in consideration with other elements of the marketing mix
• It is used in markets where demand is known to be inelastic

Price discrimination

• This is when different prices are charged for products that are identical in every respect
• First the market is segmented and then different prices are levied
• For example a beauty products company can geographically segment the market and charge higher prices in up market areas
• The business has to guard against seepage where lower priced products seep into the higher priced areas thus negating the benefits of price discrimination
• Differential pricing-is when slightly different products in terms of branding,size, packaging or other attributes but of a similar nature are sold at different prices to different segments at different prices for example the iPhone S and the iPhone S Plus
• A price differentiation will charge a high price in areas/to segments where the demand is inelastic
• Another example is of urban commuter omnibuses that charge different fares to different surbubs despite the distance being essentially the same

Skim pricing

• Also known as price skimming or market skimming pricing
• Is a form of pioneer pricing where a new high end or very differentiated product is sold initially at a high price
• The price is subsequently reduced at intervals to capture lower end buyers and thwart copy cats
• The aim is to maximize profit and quickly recoup research and development costs
• By the time the copy cats appear the firm would have at least recouped a substantial part of its costs thus allowing it to increase volumes at lower prices and enjoying economies of scale in the process
• Skimming is more successful if the product is revolutionary and new and/or if
• The business’s has exclusive rights to produce a product as it is protected by patents
• There is a sufficient number of buyers willing to pay the high price

Penetration pricing

• A strategy adopted for quickly achieving a high volume of sales and deep market penetration of a new product
• It involves charging a very low price, sometimes even below the cost of production, in a bid to gain market share and a foothold in the market
• Under this approach, a product is widely promoted and its introductory price is kept comparatively low
• The assumption is that the demand for the product is elastic and the low price will increase demand
• It will also work better if the market is so large that the current losses will be covered by profit from future sales
• Another big assumption is that competitors will not reduce their prices to match the business’s prices

To access more topics go to the O Level Business Notes