Pricing strategies

Then a markup is set for each unit, based on the profit the company needs to make, its sales objectives and the price it believes customers will pay.

Skimming is usually employed to reimburse the cost of investment of the original research into the product: commonly used in electronic markets when a new range, such as DVD players, are first sold at a high price.

This strategy will make people compare the options with similar prices; as a result, sales of the more attractive high-priced item will increase.

The limit price is often lower than the average cost of production or just low enough to make entering not profitable.

The problem with limit pricing as a strategy is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm's best response.

An example of this would be if the firm signed a union contract to employ a certain (high) level of labor for a long period of time.

[11] Supermarkets and restaurants are an excellent example of retail firms that apply the strategy of loss leader.

By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor.

While most uses of pay what you want have been at the margins of the economy, or for special promotions, there are emerging efforts to expand its utility to broader and more regular use.

In marketing it is a theoretical method that is used to lower the prices of the goods and services causing high demand for them in the future.

This strategy of penetration pricing is vital and highly recommended to be applied over multiple situations that the firm may face.

[16] This technique is very common in internet companies, which often don't turn a profit until they've acquired monopoly status, if then, instead putting all their money into expanding market share.

It is very cheap to reuse a piece of software, once written, so there are substantial economies of scale that favour this approach, as does the social trap effect[17] (it's hard to leave Facebook).

[18] Examples of sellers who often use performance-based pricing are real estate agents, online advertising platforms, and personal injury attorneys.

Performance-based pricing has fewer chances to work if the desired outcome is not clearly defined and quantified between the two parties.

Companies or firms that tend to get involved with the strategy of predatory pricing often have the goal to place restrictions or a barrier for other new businesses from entering the applicable market.

In the long run, firms often will not benefit as this strategy will continue to be used by other businesses to undercut competitors' margins, causing an increase in competition within the field and facilitating major losses.

[21] This strategy is dangerous as it could be destructive to a firm in terms of losses and even lead to complete business failure.

Consumers are willing to pay more for trends, which is a key motive for premium pricing, and are not afraid of how much a product or service costs.

When a firm price discriminates, it will sell up to the point where marginal cost meets the demand curve.

Firms must have control over the changes they make regarding the price of their product by which they can gain profitability depending on the amount of sales made.

[24] An observation made of oligopolistic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following.

The context is a state of limited competition, in which a market is shared by a small number of producers or sellers.

By responding to market fluctuations or large amounts of data gathered from customers – ranging from where they live to what they buy to how much they have spent on past purchases – dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer's willingness to pay.

In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.

[27] As of 2018, several third-party tools have allowed merchants to take advantage of a time based dynamic pricing including Pricemole,[28] SweetPricing,[29] BeyondPricing,[30] etc.

[32] Variable pricing strategy has the advantage of ensuring the sum total of the cost businesses would face in order to develop a new product.

[33] Yield management is a strategy which aims to monitor consumer behaviour to gain and achieve maximum profit through selling goods and services that are perishable.

The theory behind this strategy is to focus on the following aspects: buying behaviour patterns of consumers, external environmental factors and market price to successfully gain the most profit.

Thus, prices were decreased in order to attract and manipulate the customers into buying an airline ticket with great deals or offers.