According to the definition the price of the product might be the amount of money that a business expects to receive from good or service which was purchased by its customer. For a majority of products price is determined in a free market by the forces of supply and demand. Also price is one of the 4 elements of Marketing Mix.
Pricing strategies are only the medium or long-term pricing plans that a business adopts. There are some main pricing strategies:
Price skimming is often used when a new innovative product is launched onto the market. The risk that this product will face competition in the short term is very low. So by setting a high price, the business will achieve a limited volume of sales but with a high profit margin on each sale. This revenue which will be generated might recoup some of the development costs for this product, as R&D stage requires a lot of investments. An example might be such Apple product as “Ipad”. The price is lowered in this case when the competitors enter the market.
Price leadership is often used for established products with strong brand images and brand loyalty. The firm who is adopting this strategy should be a dominator on the market while other firms just follow it. It is common for price leaders to set up prices over the market rate. A bright example is Bentley Continental which price is incredibly high.
Firms which decide to enter the market with the similar products uses penetration pricing. The price is set deliberately low to gain a foothold in the market. The expectation of the business is, once the product is established, the price will be increased in order to boost profits. Companies adopting these strategies rely on high sales to earn high profits. For instance there are a lot of new brands of chocolate bars in Tesco which are selling twice cheaper than others as brands are new, so the companies decides to adopt penetration pricing strategy.
Price taking is one more strategy. Price takers usually...
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