Competition based pricing strategies Price leadership Few substitutes, in the eye of the customer Competitors follow the leader by establishing their prices.

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Presentation transcript:

Competition based pricing strategies Price leadership Few substitutes, in the eye of the customer Competitors follow the leader by establishing their prices based on the price set by the price leader. Predatory pricing It involves temporarily reducing price in an attempt to force rivals out of the industry Price war Some companies sell products at below cost price (Anti-competitive). Limit pricing or pre-emptive pricing

Going rate pricing (Higher level extension) A firm charges a similar price to that of competitors for their products and services

Market-led pricing strategies Penetration pricing It sets a low price in order to gain market share and brand awareness Over the time, as the product establishes itself, the price can be raised. For product that have a high price elasticity demand= Low price, High sales volumes

Skimming pricing It tends to be used for technologically advanced and innovative products High price to maximize profits before competitors are attracted to the industry When competitors appear, the original firm will skim, or gradually reduce, its prices.

Prestige pricing A firm permanently sets high price because of image, reputation or status associated with the product. Luxury carsHigh class jewelery

Price discrimination When the same product, usually service, is sold in different markets at different prices. * Children and adults pay different prices for entering the same cinema Airline companies increase their prices during Christmas and summer holiday periods (Customers are more willing to pay higher prices)

Loss leader (Higher level extension) * It involves selling a product at or below its cost value. It costs $800, but it is sold for between $499 and $599 The aims is to recoup the loss by sales of complementary goods

Psychological pricing (Higher level extension)

Promotional pricing When marketing new products by charging a low price to entice customers and build brand awareness. It is also used to get rid of excess stocks or renew the interest if sales have been falling. Rivals can copy the technique. It is similar to discount pricing. It can be used at the beginning or later in the product’s life cycle (Extension strategy)