With a HiLo pricing strategy, retailers have relatively high regular prices, but use substantial temporary price reductions to advertise their products and draw customers into the stores.
The alternative is an EDLP strategy, for which prices remain stable over a long period of time. It involves offering consistently low prices. Wal-Mart is an important example of such a strategy.
Prestige Pricing: Higher prices connote higher quality. Luxury brands are the perfect example of this strategy. A latte at Starbucks has a higher perceived value than a basic coffee with cream.
Current profit maximization - seeks to maximize current profit, taking into account revenue and costs. Current profit maximization may not be the best objective if it results in lower long-term profits.
Multiple pricing—seeks to get customers to purchase a product in greater quantities by offering a slight discount on the greater quantity. In the display of prices, a price for the purchase of just one item is displayed along with the price for a larger quantity.
Offering specially-reduced prices can be a powerful tool. This could be a clearance discount to sell old stock, a discount for making multiple purchases of the same or similar products, or you could offer bulk discounts to encourage larger orders.
Competition-based pricing is the second-most-popular price-setting approach. ... When taking this approach, a firm simply checks out its competition's price and then sets the price of its own product at about the same level, plus or minus a few percent.
Cost-based pricing is a traditional approach and a simple method. The company determines the expense incurred - either direct or indirect - on production and adds a desired profit margin to arrive at a price. Empirical research has shown that the cost-plus method is the most widely used one for pricing.
Demand-based pricing looks outwards from the production line and focuses on customers and their responsiveness to different price levels. ... Demand-based pricing allows the price to go up when demand is strong and, vice versa, for the price to go down when demand is weak. Examples of demand-based pricing can be found within the package holiday industry where prices are highest during the school summer holidays and in the travel industry where prices vary according to the level of demand...
...research suggests that pricing strategies can have a huge influence on company profits. ...a study of more than 2,400 companies by McKinsey in 1992 show[s] the impact that various decisions would have on the bottom line: a 1% reduction in fixed costs improves profitability by 2.3%; a 1% increase in volume will result in a 3.3% increase in profit; a 1% reduction in variable costs will prompt a 7.8% rise in profit; but a 1% hike in pricing can boost profitability by 11%.
A firm's base pricing strategy establishes the initial price and sets the range of possible price movements throughout the product's life cycle. The initial price is critical, not only for initial success, but also for maintaining the potential for profit over the long term. There are several different approaches to base pricing, including market introduction pricing, prestige pricing, value-based pricing (EDLP), competitive matching, and nonprice strategies.
Pricing decisions are influenced by a variety of legal constraints imposed by federal and state governments. Pricing is also regulated by the general constraints of U.S. antitrust legislation. The Robinson-Patman Act of 1936 is federal legislation prohibiting price discrimination that is not based on a cost differential; it also prohibits selling at an unreasonably low price to eliminate competition. In other words, it rules that differences in price must reflect cost differentials and prohibits selling at unreasonably low prices to drive competitors out of business.
When you set a price, it must be higher than the variable cost of producing your product or service. Each sale will then make a contribution towards covering your fixed costs - and making profits.
Pricing - Method adopted by a firm to set its selling price. It usually depends on the firm's average costs, and on the customer's perceived value of the product in comparison to his or her perceived value of the competing products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation. See also pricing strategy.