Competition based pricing strategies

Price leadership •Few substitutes, in the eye of the customer• Competitors follow the leader by establishing their prices based on the price set by the price leader.

Predatory pricing•It involves temporarily reducing price in an attempt to force rivals out of the industry• Price war• Some companies sell products at below cost price (Anti-competitive). Limit pricing or pre-emptive pricing

Going rate pricing (Higher level extension)• A firm charges a similar price to that of

competitors for their products and services

Market-led pricing strategiesPenetration pricing• It sets a low price in order to gain market

share and brand awareness• Over the time, as the product establishes

itself, the price can be raised.• For product that have a high price elasticity

demand= Low price, High sales volumes

Skimming pricing• It tends to be used for technologically

advanced and innovative products• High price to maximize profits before

competitors are attracted to the industry• When competitors appear, the original firm

will skim, or gradually reduce, its prices.

Prestige pricingA firm permanently sets high price because of

image, reputation or status associated with the product.

Luxury cars High class jewelery

Price discriminationWhen the same product, usually service, is sold

in different markets at different prices.* Children and adults pay different prices for

entering the same cinema

• Airline companies increase their prices during Christmas and summer holiday periods (Customers are more willing to pay higher prices)

Loss leader (Higher level extension)* It involves selling a product at or below its cost

value.It costs

$800,but it is sold for between $499 and

$599The aims is to recoup the loss by sales of

complementary goods

Psychological pricing (Higher level extension)

Promotional pricing• When marketing new products by charging a

low price to entice customers and build brand awareness.

• It is also used to get rid of excess stocks or renew the interest if sales have been falling.

• Rivals can copy the technique.• It is similar to discount pricing. It can be used

at the beginning or later in the product’s life cycle (Extension strategy)