Question

What are various strategies used for pricing a product?

Answer 1

1. Skimming pricing: It means setting a high introductory price to quickly recover the investment made in the product. When a product is first introduced in the market, often a high price is charged. New products are often launched at a high price to recover the development cost as quickly as possible. Skimming is most appropriate when the demand is expected to be relatively inelastic.
2. Penetrating pricing: The strategy involves fixing a lower initial price to capture as large a market as possible. It is most appropriate when the demand is highly elastic, i.e., by reducing price, demand can be increased to a large extent and the product is of the nature that it can gain mass appeal fairly quickly.
3. Cost plus pricing: The price is fixed such that it yields cost as well as profit to the seller. Selling price per unit = Total cost per unit + Desired profit per unit. However, this method ignores the nature and level of the demand. Selling price therefore may be out of tune with market conditions.
4. Parity pricing: It is the pricing strategy adopted when a business firm adjusts its own price policy in accordance with the general pricing structure in the industry. It is suitable under the following conditions:
   1. When it is difficult to measure the cost.
   2. When competitive products are homogenous, i.e., similar in nature.