Pricing Strategy Analysis

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PRICING STRATEGIES
Pricing products or services one of most challenging processes we take on
Price denotes what a seller requires in exchange for transferring ownership or use of product or service
Total sales revenues dependent on two factors: volume and price
Even small variations can radically alter revenues
Team Assessment: Pricing: How Low Can You Really Go?
1. Are price cuts the only way to go during tough times?
2. How can you determine if customers really want price cuts?
3. What is an alternate to cutting prices; why is it effective?
PRICE ELASTICITY
Elastic Demand
Price Elasticity of Demand
Price Elasticity of Demand = % Change in Quantity % Change in Price
Inelastic Demand

Elasticity is an important economic factor, influencing
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We can execute this strategy when our product which faces little or no competition.
Typically, this condition is due to the addition of new technological features.
There are always “early adopters” who are prepared to pay a higher price to own cutting or bleeding edge technology products.
Good examples of price skimming are Apple iPad and Sony PlayStation 3.
Problems with this approach:
Price skimming strategy cannot last for long
Competitors rapidly launch rival products, putting pressure on price
To encourage broad distribution (place), it may be necessary to give retailers higher markup, reducing the improved margins
Skimming may slow down demand for the product, giving competitors more time to develop lower cost substitute products brought to market when volume demand is strongest
Loss leaders
A loss leader is a product priced below cost in order to attract consumers. It encourages customers to make further purchases of profitable goods while they are in the shop.
Using loss leaders can help drive customer loyalty by undercutting competitors on price, new customers can be attracted, and existing customers may become more loyal.
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Price is a benchmark quality in eyes of many consumers.
“Designer products" appeal to ego and self-image.
Certain lines of clothing, perfume, and automobiles are marketed very effectively using this method.
Customers shopping for this type of product are particularly sensitive to Reference Prices.
Since these items are higher-priced they are aware of current prices, historical prices, purchasing context.
Retailers are expert at surrounding products with expensive products; implication is that product along in same category as expensive product. If your market is high-end, extra sales effort when placing product might pay off handsomely.
You can also create a high reference-price by listing item at an elevated suggested retail price.
Many companies list their prices ending in an odd number.
Psychologically, customers tend to view items priced this way as being in a lower price category than they really are. TVs priced at $399 are perceived to be in a $300 range.
Another perception is that prices with odd dollar endings are on sale.
Much of how you price your product depends on image you want to

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