Pricing Approach
Costs
→Value
→Competition
→Strategy
In This Article
Introduction
Pricing is the only marketing mix element that generates revenue—all others represent costs. Strategic pricing decisions significantly impact profitability, market positioning, and competitive dynamics.
New Product Pricing Strategies
| Strategy | Approach | When to Use |
|---|---|---|
| Price Skimming | Start high, reduce over time | Innovative products, inelastic demand, limited competition |
| Penetration Pricing | Start low to gain share | Price-sensitive market, economies of scale, deter competitors |
Example: Skimming
Apple iPhone launches at premium price, captures early adopters, then introduces lower-priced models to expand market.
Product Mix Pricing
- Product Line Pricing: Price steps between products in a line (Good, Better, Best)
- Optional Product Pricing: Base product + optional accessories at higher margin
- Captive Product Pricing: Low base, expensive consumables (razors/blades, printers/ink)
- By-Product Pricing: Price by-products to offset main product costs
- Bundle Pricing: Combine products at lower total price than individual
Price Adjustment Strategies
- Discount Pricing: Cash, quantity, seasonal, trade discounts
- Segmented Pricing: Different prices for different segments (students, seniors)
- Geographic Pricing: Vary by location (FOB, zone, freight-absorption)
- Promotional Pricing: Temporary reductions to stimulate sales
Psychological Pricing
| Tactic | Description | Example |
|---|---|---|
| Odd-Even | Prices ending in 9 or 5 | ₹999 vs ₹1000 |
| Prestige | High price signals quality | Luxury brands |
| Anchoring | Show higher price first | "Was ₹2000, Now ₹1500" |
| Decoy | Add option to make another look better | Small, Medium, Large sizing |
Dynamic Pricing
Adjusting prices in real-time based on demand, competition, and other factors.
- Time-based: Surge pricing (Uber), happy hour
- Demand-based: Airlines, hotels
- Competitive: Real-time matching
- Personalized: Individual customer pricing (controversial)
Caution: Dynamic pricing must be implemented carefully to avoid customer backlash and legal issues around discrimination.
Conclusion
Key Takeaways
- Skimming: High initial price for innovative products
- Penetration: Low price to gain market share quickly
- Product mix: Line, optional, captive, bundle pricing
- Adjustments: Discounts, segmented, geographic, promotional
- Psychological: Leverage cognitive biases (odd pricing, anchoring)
- Dynamic: Real-time adjustments based on conditions
- Price is the only P that generates revenue—get it right