What pricing strategies should be considered when fixing a price?

1) Penetration pricing: Price way low to enter the market.

Penetration pricing is the pricing technique of setting a relatively low initial entry price, a price that is often lower than the eventual market price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume.

2) Personalized pricing: Firms charge different prices to different consumers.

Many companies use personalized pricing to sustain competition, to remain in business, and to grow their business.

3) Market pricing: Pricing at the same level as the competition.

A firm has to assess how its product relates to a competitive product and set its price at a comparable level to stay competitive. For example, most agricultural commodities are sold in markets where price has been established by broad market forces.

4) Cost-plus pricing: The cost of production plus a designated percentage is cost-plus pricing.

This method is useful in situations where costs are not known in advance. An example would be custom orders in the initial stages of developing a new product. For example, a group of friends of mine opened a company named InfoTech some time ago. They provide different IT services. As they explained to me, often it is very difficult to set a price at the beginning of the project, since projects sometimes are very different and additional details are reviled only in the middle or at the end of the project. So, first they calculate approximately what the price should/could be in order to cover all expenses and add money on top of it.

5) Loss leaders: A company loses money on one service but earns on a related product.

This strategy is often implemented as a part of a promotion campaign. The intent of this practice is not only to have the customer buy the (loss leader) sale item, but other products that are not discounted.

One example is HP inkjet printers that are often sold to retail customers below their true value, at a price which seems to be affordable to most consumers. However, consumers have to pay the regular price for ink cartridges. It is ink cartridges, not the printers that generate high profits for the HP.

23 Give the analysis of Price-Demand Relationships

Economists give prices a special place in this analysis. The DEMAND CURVE is defined as the relationship between the price of the good and the amount or quantity the consumer is willing and able to purchase in a specified time period, given constant levels of the other determinants--tastes, income, prices of related goods, expectations, and number of buyers.

Two important explanations are the (1) income effect --as the price per good is smaller, you can buy more goods with fixed income without giving up buying other goods, and the substitution effect --that there are other goods that you regard as substitutes become less expensive you might switch to them.

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