This strategy is used for new products/services trying to penetrate the market, or existing products/services entering new markets, by offering initial low prices. Such low prices will attract the customer and through continued use and purchase, they may not be discouraged by any future price increases and remain loyal to the product/service.
In other words, the initial low price that you offer may not even cover all associated costs, but when you increase the price in the future, it will compensate for the loss you made or any profits you missed out on.
For example, the first two or three editions of a monthly magazine may be offered at, say, Rs.50, but after this the magazine price increases to, say, Rs.100. Because most people will have found interest in the first editions of the magazine, they are likely to continue buying the magazine in the future.
Price discrimination involves charging different prices for your product/service at certain times, or to different types of customers. The classic scenario is telephone services charges off-peak hours are much cheaper than peak hours. This is because they know that their service is in high demand during peak time (around 8am - 6pm) as they are the business operating hours.
Another common discrimination is offering your service at higher prices during the weekend (Saturday and particularly Sunday) as customers may find it hard to find other alternative services during this time.
The above examples are all to do with timing, but the other price discrimination is aimed at the different types of customer. In this case, the best example would be offering students a discount of, say, 10% for using your service or buying your product, you may even offer your service/product cheaper to loyal customers, say, those that have been trading with you for more than a year.
This would involve extensive market research, as the idea is to charge what customers are willing to pay (within reason).
If your product/service is new or unfamiliar in the market, you can expect potential customers to give it a low price. Alternatively, if your product/service is popular or unique in the market, you can expect people to be more favorable toward its value.
If you adopt this strategy, you should review your research periodically, say, every six months as customers may develop a different attitude toward your product/service. Consequently, in time, customers may value your product/service differently and so you should change your price to correspond with customer expectations, whether they are higher or lower.
This strategy is used as an attempt to eliminate competition. It involves lowering your prices to an extent where competition cannot compete and consequently, they go out of business.
By just reading the last sentence, it sounds very threatening to not only the competition, but also to yourself: this is what you find with all competition based pricing strategies.
It is therefore important that you recognize how threatening the competition is and research how competitive they can be with their prices: they may be able to compete with your price cuts and consequently you both, or even just yourself may go out of business.
Many businesses feel that lowering prices to be more competitive can be disastrous for them (and often very true!) and so instead, they settle for a price that is close to their competitors. Any price movements made by competition is then mirrored by yourself: so long that you can compensate for any reductions if they lower their price.
Your business may be considered as one of the more dominant within it’s market because you offer a service or product that is unique or popular (through branding). As a result, you may have the power to set the price in which your competitors will attempt to follow.
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