Different pricing strategies

  1. Market penetration has as its main objective the capture of a large share of the market as quickly s possible. In the short term this may lead to lower profits but if the business can establish itself in the market the long-run profits might be high. A great deal will depend on the expected product life and the power of businesses already operating in the market, together with the financial resources of the business adopting this strategy. A short product life cycle will not give the business time to recover development costs if the price is too low. Powerful market leaders with larger financial resources than the producers of the emerging product could follow a policy of price-cutting.

  2. Market skimming. A high price resulting from high profit margins means a quick recovery of development costs. A business might follow this strategy if its product was technically innovative but it had reason to believe its competitors were likely to launch imitative products in a short time. Fashion products, not only in the garment world but also in games, gimmicks, toys, etc. might also follow this policy. It is a viable option for businesses that expect their product to have along life span but are in a position to charge a relatively high price in the short term, perhaps with the intention of reducing the price as an extension strategy in the medium to long term. A business is likely to select its pricing strategy according to the stage in its life cycle a product has reached, perhaps pricing to penetrate the market in the early stages of the life cycle and switching to a skimming policy when the product is well established.

  3. Tendering is a pricing strategy that is imposed on businesses by market condition. Governments and local authorities will require businesses to submit a price for a particular job and give a detailed breakdown of costs. Householders engaging builders ask for estimates of the work to be undertaken. The supplier is working without detailed knowledge of his competitors’ prices. The customer has the task of ensuring that the prices tendered are for comparable work.