Explain the Types of Pricing Strategy of a Marketing Mix.

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Explain the Types of Pricing Strategy of a Marketing Mix.

By | March 2011
Page 1 of 2
Pricing strategy is an idea implemented into a plan to get the most favourable price for a service or product that will give way the highest profit. Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organisation. The remaining 3p’s are the variable cost for the organisation. It costs to produce and design a product; it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organisation.

Types of Pricing Strategy:
An organisation can adopt a number of pricing strategies. The pricing strategies are based much on what objectives the company has set itself to achieve.

Price Skimming:
Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, and then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price. The objective of a price skimming strategy is to capture the consumer surplus. If this is done successfully, then theoretically no customer will pay less for the product than the maximum they are willing to pay. In practice, it is almost impossible for a firm to capture this entire surplus. Example: With certain high-end electronics, such as the Apple iPhone and Sony PlayStation 3, price skimming was used. For instance, the Play station 3 was originally sold at £399, but it has been gradually reduced to £299.

Penetration Pricing:
Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the...