Examples of High and Low Pricing Strategies
Pricing approaches are integral in the overall marketing strategies of companies. In general, businesses use pricing to achieve a number of marketing objectives. Some use high price points to emphasize the quality of their products. Others use low prices to attract larger customer bases of cost-conscious buyers. In the middle are value-oriented providers who stress their combination of price and benefits. For the high- and low-end providers, several common pricing strategies exist.
Skimming is a short-term pricing strategy used at the launch of a new business or product. The objective is to maximize short-term profits when you have a high demand or cutting-edge solution. High price points are set during the introduction life cycle stage when early adopter buyers make purchases. Eager buyers commonly pay whatever prices are demanded on innovative products. Once you have achieved high profit margins on the early crowd, prices are lowered to attract additional customers more concerned about a better price. This approach is also a form of discriminatory pricing, which means you try to get the most profits from each customer based on his willingness to pay certain prices.
A premium pricing strategy is a simple concept where you establish price points at or near the top of the industry to coincide with a high-end, luxury brand image. Consumers usually associate price with quality. Thus, if you market your brand as the best quality, most luxurious, and convey status to upper class buyers, the market expects a high price point. Buyers in the targeted upper class income market will pay if they see the quality you promise.
Market penetration is an opposite approach to skimming used by companies at new launches. With this strategy, you enter at industry or product low price points to attract a large base of initial customers. Building a loyal customer base early, gaining market share and generating word of mouth publicity are strengths of this technique. Once market share is gained and customer growth levels off, prices are often raised to a stable, long-term price position.
Loss leadership is a pricing technique employed by many types of resale businesses at one time or another. This is the use of sales promotions or discounts on products, services or departments to generate traffic to your business. The "hook," or loss leader product, is usually sold at a loss with the thinking that customers will buy additional items while in the store. In some cases, cross marketing techniques are used to position more premium products nearby to generate higher profit margin sales.