Components Of Pricing Strategies

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Pricing Strategies

What are the various pricing strategies at the disposal of an organization?
Pricing is defined as the process of what a company will receive in exchange of its services or products. It can also be defined as the method adopted by a firm to set its selling price. Factors that influencing pricing include manufacturing cost, competition, quality of product, brand, market place and market condition.
Pricing strategy: It’s the pursuit of identifying the optimal price of a product. This strategy is combined with the other marketing principles known as the 4 P’s. The pricing strategy is one of the most critical components in the marketing mix and is focused in generating revenue and ultimately profit for the company.
Pricing strategies
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Pricing strategies to attract customers / increase profit
• Premium pricing Strategy: - This occurs when an organization makes a good more expensive to try and give the impression that it is better quality, e.g. ‘premium unleaded fuel’, fashion labels.
• Price Discrimination Strategy: - This involves charging a different price to different groups of consumers to take advantage of different elasticity’s of demand. There are different types of price discrimination from second degree to third degree.
• Reference Pricing Strategy: - This involves setting an artificially high price to be able to later offer discounts on previously advertised price.
• Price Matching Strategy: - The purpose behind price matching is making a promise to match any price cuts by your competitors. The argument is that this discourages your competitors from cutting price. This is because they know there is little point in cutting prices, because you will respond straight away. Very clear price matching stances can thus avoid price wars and give the impression of being very competitive.
• Retail price mechanism RPM Strategy: - This occurs when manufacturers set prices for retailers i.e. EABL and Coca-Cola set RPM price for their
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Pricing strategies to cement market share / market position
• Limit pricing Strategy: - This occurs when a monopoly set price lower than profit maximization to discourage entry. This enables the firm to make supernormal profit, but the price is still low enough to deter new firms to enter the market.
• Predatory pricing Strategy: - Selling price below cost to try and force rival out of business. Predatory pricing is illegal. Predatory pricing can be made easier through cross Subsidization. This occurs when a big multinational may use profits in one area to subsidies a price war in another. The cross subsidization enables a firm to sell a product very competitively (or even at a loss) to try and force the rival firms out of business.
D. Pricing strategies to help determine the price
• Average cost pricing Strategy: - When a firm sets the price equal to average cost plus a certain profit margin.
• Market based pricing Strategy: - When firms set a price depending on supply and demand. For example, if football clubs, used market based pricing, clubs like Manchester United would probably increase the ticket price – because at the moment, all tickets are sold out – suggesting price is below the

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