Notesale: Turn your study into money

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PRICING OBJECTIVES AND STRATEGIES
Setting the right price on your product or service can have a big effect on your number of
sales
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Pricing Objectives
Many pricing objectives are available for careful consideration
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You'll need to have a firm understanding of
product attributes and the market to decide which pricing objective to employ
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Profit margin maximization— This objective is typically applied when the total
number of units sold is expected to be low
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This objective is not necessarily tied to the objective
of profit margin maximization
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Revenue maximization—seeks to maximize revenue from the sale of products without
regard to profit
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Quality leadership—used to signal product quality to the consumer by placing prices
on products that convey their quality
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This objective
may be chosen if you have an underlying goal of taking advantage of economies of
scale that may be realized in the production or sales arenas
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Survival—put into place in situations where a business needs to price at a level t hat
will just allow it to stay in business and cover essential costs
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Survival pricing is meant only to
be used on a short-term or temporary basis
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Pricing Strategies
1
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Usually, there is no
substitute because the product is unique or prestigious and the demand is very high
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Price skimming allows early adopters to test the product
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It also allows research and
development costs to be recovered early on before any competitors enter the market
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2
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This encourages customers to try before they buy since they
can purchase the product at a lower price than normal
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A common example is utility
companies like internet providers that have cheap introductory offers but then their
prices slowly creep up over time
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However, as a disadvantage, if the price is too low, it makes it harder to cover
costs and make a profit
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3
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It is mostly used when customers are faced with
lots of similar products
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This could be achieved through better product features and benefits
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Loss Leader: these are businesses that sell their products at, or even below their cost
so they don´t profit from those products
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The business makes up for the loss
from the loss leader by selling its other higher priced items
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It can be used by business that want
to position themselves as high value option
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Cost-Plus Pricing: this is where the seller determines their cost of production and
adds an amount depending on how much profit they want to make
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It can be achieved through mark-up (expressed as a percentage of
the product´s cost) and profit margin (expressed as a percentage of the product´s
selling price)

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