Pricing Strategies Essay Example for Free

Pricing Strategies EssayCompetition based set backcloth the impairment based upon expenditures of the similar opponent outputs. Competitive pricing is based on three types of competitive point of intersections* Products having lasting distinctiveness from competitors harvest. Here we can assume* The convergence has emit price elasticity.* The product has low cross elasticity.* The demand for the product will rise.* Products have perishable distinctiveness from competitors product, assuming the product features argon medium distinctiveness.* Products have little distinctiveness from competitors products.Assuming that* The product has tall price elasticity of demand. * The product has some cross elasticity of demand.* No expectation that the demand of the product will rise.Cost plus pricingCost plus pricing is the saucer-eyedst pricing method. The firm calculates the exist of producing the product and adds on a percentage (profit) to that price to give the sell price . This method although has two flaws it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price. AC + Profit markupIt is lower than profit maximising aim of pricingPrice = Cost of production + Margin of profitCreaming or skimming change a product at a high price, sacrificing high sales to come along a high profit, because skimming the market. Usually employ to reimburse the cost of investment of the original research into the product commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target wee adopters of a product or service. These early adopters are relatively less price crank because each their need for the product ismore than others or they understand the value of the product better than others. This strategy is employed only for a limited duration to recover most of investment m ade to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors.Limit pricingTo set a price low enough to ensure that new entrants are discouraged to enter the market. A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease the output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a stoppage to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition.The problem with limit pricing as strategic behavior is that one time the entrant has entered the market, the quantity used as a threat to deter entry is no chronic the incumbent firms best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to strive this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An practice session of this would be if the firm signed a union contract to employ a certain (high) level of labour for a long period of time.Loss leaderLoss leader Basic pattern in the majority of cases, this pricing strategy is illegal under EU and US Competition rules. No market leader would wish to sell below cost unless this is part of its overall strategy. The idea of selling at a loss may appear to be in the public following and therefore often not challenged. Only when the leader pushes up prices, it then becomes suspicious. Loss leadership can be similar to predatory pricing or cross subsidiz ation both seen as anti-competitive practices.Market-orientated pricing set a price based upon analysis and research compiled from the targeted market. Also with the cost price.Penetration pricingThis price is deliberately set at a low level to gain customers interest and establishing a foot-hold in the market.Price discriminationSetting a different price for the same product in different segments of the market. For example, this can be for different ages or for different opening times, such as cinema tickets. Such as market orientated pricing is also a very simple form of pricing used by very new businesses. What is involves is, setting a price of product/service according to research conducted on your target market. It holds good in case of price sensitive consumers existence of large mass market intence competition in the market.