Pricing Strategies Aimed at achieving long term profit growth.

Cost Plus Pricing The simplest approach to price setting is the Cost Plus or Mark Up method. This involves adding a percentage or predetermined amount of profit to the cost per unit to determine selling price. Example: Average cost of a Cup of coffee $4 Add 50% markup Selling Price of the cup of coffee $6

Penetration Pricing A Penetration price strategy is one in which a product is priced low to attract more customers and discourage competitors. This strategy allows businesses to penetrate or capture a large share of the market quickly. Example: In 2009, Sony subsidized the cost of its Play Station 3 hardware to $299, in order to gain market penetration, losing up to $300 per console.

Skim Pricing Strategy A skimming pricing strategy is one in which the product is priced higher to make optimum profit while there is little competition. Example: When Philips launched its flat screen televisions during the late 1990’s, each TV sold for $15,000.

Psychological Pricing Strategy Sellers consider the psychology of prices and not simply the economics. It takes account of customer’s perception of the value of the product. Example: $499 or $99.99

Loss Leaders These are products that are priced at very low levels in order to attract customers. The company selling the product makes a ‘loss’ on each product sold. Businesses use this pricing technique because they expect the losses made on the loss leader to be more than compensated for by the extra profits on the other products. Example: Xbox 360 price to make unit $525 Selling price $399 But the gaming software and accessories recoup the difference.

Price Discrimination Price discrimination occurs when companies charge different groups of consumers different prices for the same product. Example: Children and adults pay different prices for entering the same movie theatre or theme park.

Competitive Pricing Stragegy Predatory pricing is used by companies to undermine the sales of rivals or to warn potential new rivals not to enter a market. (This strategy is illegal in some parts of the world, but is very difficult to prove. Example: Airline industry