PRICING STRATEGY

Pricing strategy is one of the most important for any company and this is one such factor
where a variety of strategy can be applied. The price can be set to gain maximum profit from
the product, to defend the brand or product in an existing market from new entrants, to
increase the market share or to enter a new market.

TYPES OF PRICING STRATEGIES

1. Penetration Pricing- the price charged for the product is kept low on a temporary
basis so that the product can gain the market share. Once, a company gains the market
share the price is hiked. As the product become popular and holds a larger market
share the price of the product increases. Many OTT channels provide free
subscription at the initial basis to all the consumers but as the channel grows popular
it starts charging the amount from the viewers.

2. Skimming Pricing- in this strategy the company charges a higher price because the
product owes a substantial competitive advantage. This high price is not a permanent
thing. Initial it is kept to attract the customers and gradually the price is brought down
due to increased supply.
3. Competition Pricing- this strategy is related to the fixing of price while keeping the
competitors and competition in mind. In this strategy it is believed that the
competitors have already thoroughly worked upon their pricing and by keeping these
price in mind the company tries to set a state of equilibrium to avoid anything further
competition in the market.

4. Product Line Pricing- pricing becomes very important point of consideration in

product line. Where there is a range of products or services the pricing reflects the
benefits of the parts of range. Product line pricing fails to show the cost of making the
product since it delivers a range of prices which the consumers finds more suitable
and beneficial.

5. Psychological Pricing- in this pricing strategy the consumer is targeted to respond

emotionally rather than rationally. The strategy of offering the products at 99 rs, is
one of such strategies. The offer of range of price for buying eatables like pizza, ice-
cream at various price range emotionally drives the consumer to buy the product.
Basically, here the marketers offers a range of price and all satisfactory to the
consumer at various range and this makes the consumer to buy the product of the
price which emotionally and as per usage suits the consumer.

6. Cost-Plus Pricing- this is a very simple strategy of deciding the price of a product
based on the cost invested in the product. Here, the marketer at first determine the
break-even price which includes all sorts of cost which a company puts in creating a
product. After keeping all the cost invested in creating the product the company
decides a final price at which the product has to be launched in the market.

7. Cost-Based Pricing- the pricing is decided on the basis of the cost invested in
producing, distributing and selling the product. In the pricing even the company adds
up a certain amount of return for the sake of its efforts and risks. Low cost based
pricing leads to smaller margins but greater sales and profits on the other hand. It is
also a fact that the companies with higher prices also rely on cost-based pricing. Such
companies generally generate maximum profit on their product.

8. Optional Product Pricing- here the company attempts to increase the amount once
the consumer starts buying the product. Optional which means extra increases the
overall price of the product or service. For example to have an extra cheese and
topping the pizza company charges the additional charge, to have the facility of food
or window seat the airlines will cost extra charge.

9. Premium Pricing- this strategy works on the idea of deciding the price of the product
at the higher range so that the consumer should get the feeling of buying the branded
product at the premium cost which is not carried or bought by the common people.
Such pricing adds the status to the consumer and develops the feeling of availing the
luxury by paying high price.
10. Bundle Pricing- in this strategy the company puts several products or services
together in a single package and then sells the product at the lower prices. In this
package the company usually offer one main product and one complimentary product.
The retailers promote the selling of such products to increase the demand of those
products. For example providing the nice quality coffee mug which the pack of
coffee, where at a very cheap rate the consumer get a good coffee mug.

PRICING PROCESS

1. Cost-Based Pricing- the pricing is decided on the basis of the cost invested in
producing, distributing and selling the product. In the pricing even the company adds
up a certain amount of return for the sake of its efforts and risks. Low cost based
pricing leads to smaller margins but greater sales and profits on the other hand. It is
also a fact that the companies with higher prices also rely on cost-based pricing. Such
companies generally generate maximum profit on their product. There are two types
of cost based pricing-
 Cost-plus pricing- this is a very simple strategy of deciding the price of a
product based on the cost invested in the product. Here, the marketer at first
determine the break-even price which includes all sorts of cost which a
company puts in creating a product. After keeping all the cost invested in
creating the product the company decides a final price at which the product
has to be launched in the market.

The advantage of cost-plus pricing method are as follows

 Requires minimum information
 Involves simplicity of calculation
 Insures sellers against the unexpected changes in costs
 The disadvantage of cost-plus pricing method are as follow
 Ignores price strategies of competitors
 Ignores the role of customers

2. Mark-Up Pricing- it is related to the pricing method in which the fixed amount or the
percentage of cost of the product added to the product’s price to get the selling price
of the product. The mark-up pricing is very popular in retailing where a retailer sell
the product to earn profit. It is mostly expressed through the following formulae

Mark-up as the percentage of cost = (mark-up/cost)*100

Mark-up as the percentage of selling price= (mark-up/selling price)*100

3. Demand based Pricing- it is pricing method in which the price of the product is
finalised according to its demand. If the demand of a product is more, then
organisation refers to set a higher range of price of the product. The success of this
strategy depends on the ability of marketers to analyse the demand. This types of
pricing is very successful in hospitality and travel industries.

4. Competition based pricing- this strategy is related to the fixing of price while
keeping the competitors and competition in mind. In this strategy it is believed that
the competitors have already thoroughly worked upon their pricing and by keeping
these price in mind the company tries to set a state of equilibrium to avoid anything
further competition in the market.

5. Other pricing methods- along with the above mentioned methods the other methods
that are discussed are as follow:

i) Value Pricing- through this method the company sets the goal to win the
loyalty of the customers by charging low price for their high quality products.
The organisation comes up in the market as the low cost producer without
sacrificing the quality of the product.

ii) Target return Pricing- helps in achieving the required rate on investment
done for a product. In this method the price of the product is fixed by keeping
the expected profit from the product in mind.

iii) Going-rate Pricing- this method follows the style of pricing on the basis of
the popular pricing trend in the market. Therefore, the pricing strategy of the
company could be the same to the other organizations. In this method the price
set by the market leaders is followed by rest of the companies.

iv) Transfer Pricing- it involves the selling of the goods and services within the
departments of the organisation. It is done to manage the profit and loss ratios
of different departments within the organisation, one department of an
organization can sell its products to the other departments at low prices.