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4.5b. The Four Ps – Price Summary

  • Price
    • Self-explanatory – price of the product
    • Must consider a product’s costs, how much customers are willing to pay, profit targets, competition, etc.
  • Pricing strategies
    • Cost-plus pricing
      • Adding a percentage or predetermined amount (markup) to average cost per unit to set the selling price
      • Ensures a product will produce contribution
      Competition-based pricing
      • Price leadership
        • Set by the market leader and other firms simply follow
        Predatory pricing
        • Temporary reduction in price to drive away competition
        • Can be as aggressive as to sell below cost/at a loss
        Going-rate pricing
        • Simply pricing at about the average price level of most products in the market
    • Market-led pricing
      • Penetration pricing
        • Newcomers set their prices low to entice people to buy
        • Price changes from low to highRisk: lower prices = lower reputation
        Price/market skimming
        • Get a feel for what the market is like, set the price high, then as you understand the market better your prices will slowly decrease
        • Prices changes from high to low
        Price discrimination
        • The price of a product varies per country, which depends on the market; however, the products should not be easily tradedResults to the government applying taxes/tariffs
        Loss leadership
        • Products are sold at a loss, but regain their losses through their other productse.g. PS3 sold at a loss, but profits are gained through games
        Psychological pricing
        • Some numbers are more appealing
      • Promotional pricing
        • Offer discounts, rebates, promotions, etc.
        • Assure that your market likes discounts, otherwise there will be no reason in offering the promotions

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