Pricing Strategy

Pricing Strategy

1. Cost Orientated Pricing

   • Full Cost Pricing
     • Advantages
       • 1. Gives an indication of minimum price needed to make a profit. 2. Can be used with other methods – acts as a constraint
     • Criticisms
       • 1. Takes no account of customers’ willingness to pay. 2.If followed strictly, leads to an increase in price when demand falls. 3. Is illogical because a sales estimate is made before a price is set. 4. May be problems in allocating overheads.
   • Direct (Marginal) Costing
     • Involves the calculation of costs that are likely to increase as output increases
       • Advantages
         • 1. Avoids problem of allocating overheads. 2. Avoids ‘price up as demand down’ problem. 3.Indicates lowest price at which it is sensible to take business. 4. Enables the reduction of the impact of excess capacity
       • Critcisms
         • 1. When business is keeping afloat, gives no indication of optimum price. 2. Cannot be used in the long-term.

2. Market Orientated Pricing

   • 1.Marketing Stragy: Price of product should be inline with marketing strategy. Danger is price is view in isolation, with no reference to other marketing positions such as positioning. Thus, it should be recognised that pricing decision depends on other marketing planning process
     • 2. Value To customer
       • 1. Trade off analysis: Measures trade off between price and other product features so that their effects on product preference can be est.
       • 2. Experimentation: Attempts to overcome the drawback of trade-off analysis where respondents have not backed up their preferences. Experiential pricing research places a product on sale at different locations with varying prices.

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