ZIMSEC O Level Business Studies Notes: Marketing: 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

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