Pricing: Types and Tactics

Price is the amount of money an organisation charges its customers for its goods or services. Pricing is the only single element of the 4 Ps that produces revenue, as all others generate costs.
Pricing strategies should consider unit costs, competitor pricing, the product life cycle, the current state of the economy, and consumers’ perception of the value of the product (branding) when they weigh its price.  

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There are several types and tactics used in pricing. The most common ones are presented below. Note that payment arrangements and credit terms should be considered when applying each type.

Volume pricing

Flat rate pricing

Customer segment pricing

When a product is offered at a lower price per unit as the total number of units purchased increases.

When the same price for a product is charged regardless of how much it is used.

When different customers pay different prices for the same product (also known as Price discrimination).

Example

8 + 2 free battery pack

Home security services

Cinema tickets for adults and children

Objective

To encourage customers to purchase bigger quantities.

To encourage customers to pay a fixed rate regardless of usage levels, ensuring steady revenues.

To encourage demand by pricing each demographic group differently.

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The first three pricing tactics might be usefully employed by non-profit and public organisations (with certain adjustments as related to the organisational strategy).

Penetration / Predatory pricing

Promotional pricing

Bait-and-switch pricing

When a noteworthy low price is offered temporarily to attract increased sales.

When a product is intentionally offered temporarily below list price to attract customers in the hope they will buy other normally-priced items (also known as Loss Leader).

When a desirable product is promoted at an attractively low price (but intentionally at insufficient quantities) in an attempt to force customers to purchase other expensive items.

Example

A cheap airline fare to a popular destination

Supermarket private-labelled items

A rare Single Malt Scotch Whisky at a 40% discount

Objective

To achieve a quick market share increase and reduce competitive pressures.

To increase sale revenues of other items.

To increase sale revenues of other expensive items.

A Refresher on Price Elasticity
Price elasticity of demand refers to the measure of a percentage change in quantity demanded for a product, relative to a percentage change in its price, which would determine whether the demand for a product can be classified as Elastic or Inelastic.