The pricing structure

Penetration Pricing

A penetration pricing strategy is designed to capture market share by entering the market with a low price relative to the competition to attract buyers. The idea is that the business will be able to raise awareness and get people to try the product. Even though penetration pricing may initially create a loss for the company, the hope is that it will help to generate word-of-mouth and create awareness amid a crowded market category.

Economy Pricing

Economy pricing is a familiar pricing strategy for organizations that include Wal-Mart, whose brand is based on this strategy. Aldi, a food store, is another example of economy pricing strategy. Companies take a very basic, low-cost approach to marketing--nothing fancy, just the bare minimum to keep prices low and attract a specific segment of the market that is very price sensitive.

Price Skimming

Businesses that have a significant competitive advantage can enter the market with a price skimming strategy designed to gain maximum revenue advantage before other competitors begin offering similar products or product alternatives.

Psychological Pricing

Psychological pricing strategy is commonly used by marketers in the prices they establish for their products.

Pricing methods

Here are 4 ways to calculate prices:

Cost-plus pricing - Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin.

Target return pricing - Set your price to achieve a target return-on-investment (ROI).

Value-based pricing - Price your product based on the value it creates for the customer.

Psychological pricing - Ultimately, you must take into consideration the consumer's perception of your price.

The pricing structure

A pricing structure consists of a base (or list) price and a variety of price modifiers which depend on the type of product you are selling and the type of market in which you operate.

The most common price modifiers are outlined below:

· Quantity discount – an incentive to buy more.

· Settlement discount – an incentive to pay quickly.

· Promotional discount – a discount for a specific period of time.

· Seasonal discount – an incentive to clear seasonally sensitive stock.

· Cash rebate – an after-sale incentive linked to a specified target.

· Ranging allowance – paid to a reseller in return for them stocking your product.

· Promotional allowance – for participation in a promotional campaign.

· Delivery fee – an amount you charge for delivering the product.

· Credit card fee – an amount you charge on credit card purchases.

Goods — the difficult, multidimensional concept including set of many properties among which consumer properties, i.e. ability of goods to satisfy needs of the one who owns it are main.

Three-level model of goods according to Filipp Kotler:

1. Goods on a plan – fundamental level. It that the person for the solution of the problems actually buys;

2. Goods in real execution: quality, functional properties, external registration, packing, branded name;

3. Goods with a reinforcement: guarantee, crediting, delivery installation, aftersales service.

Classification of goods.

1. Goods of production appointment:

- main materials and accessories: raw materials, agricultural production, natural resource, accessories, materials, knots and details;

- capital property: stationary equipment and constructions, auxiliary: production service equipment, office service equipment;

- auxiliary materials and services: auxiliary materials: working materials, materials for maintenance and repair, business services: services in maintenance and repair, consulting services.

2. Consumer goods:

- on nature of consumption: short-term use (are completely consumed for 1 or some cycles – food, means of hygiene); long use (repeated use – footwear, clothes);

- on materiality degree: physical (having a material embodiment); services (actions, benefits or satisfactions which had by the consumer without material possession of goods);

- on nature of behavior of consumers upon purchase: goods of daily demand: a stable demand (buy regularly), impulsive purchase (without preliminary planning under the influence of minute desire), the emergency purchases (at emergence of a severe need in them); goods of a preliminary choice (compare in the course of a choice on quality, the price, to appearance and purchase plan); the goods of special demand (possessing unique characteristics, readiness of consumers to spend additional resources); goods of passive demand (don't reflect on purchase owing to small acquaintance, levity);

- on compatibility degree in the course of consumption: interchangeable (substitutes) – similar and alternative for satisfaction of certain requirements; complementary (complementary) – a necessary condition of consumption this their joint existence.

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