Effective Pricing Strategies and Factors for Profit Maximization
Understanding the key elements of pricing is crucial for businesses to optimize profit margins. Factors such as disposable income, product image, cost, demand, and competitor pricing play a vital role in setting the right price. Explore various pricing strategies like price skimming, psychological pricing, premium pricing, penetration pricing, and discriminatory pricing to enhance market competitiveness and profitability.
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Presentation Transcript
4 Ps 4 P s - - Price Price
Price Very important element of marketing mix as it determines profit earnt per unit, influences customers decision to buy or not and contibutes to products image.
Factors to consider Disposable income of target market the price must be affordable and take into account the average disposable income of its target market. Product image a price set must reflect the desired image. A luxury, premium or high end branded product should have a high price to suggest exclusivity, luxury or quality. Competitors the price should take into account that of its competitors and be in line with the firms chosen product positioning.
Cost the cost of producing, promoting and selling must be covered whilst yielding a profit for the business. If the cost changes the firm may have to increase price. Demand the higher the demand the higher price a firm can charge. A company with a monopoly can charge a higher price due to exclusivity.
Pricing strategies Pricing strategies Price skimming charging a high price for new and innovative product to recoup R&D expenditure. Used for innovative, new products with a patent or without direct competition Psychological pricing pricing to reflect a lower cost e.g. 3.99 sounds cheaper than 4 Premium pricing charging a high price to reflect a high quality image
Penetration Pricing this is where a company uses a very low price to gain entry into a market with strong competition. Once a market share has been established and customer base built up the company usually increases its price Discriminatory Pricing different prices are charged to different groupings for the same product in relation to age, economic grouping, time of booking etc.
Predatory pricing- This is where a company will greatly reduce prices in order to push competitors out. Price War this is where competing firms continuously cut prices to retaliate against rival firms. Customer benefits greatly if this situation continues for a long period of time Mark up this is where a percentage is added on to the cost of the product
