These include price skimming, price discrimination and yield management, price points, psychological pricing, bundle pricing, penetration pricing, price lining, value-based pricing, geo and premium pricing. Pricing factors are manufacturing cost, market place, competition, market condition, quality of product.

Pricing strategies are set at a higher organisation or brand level, aimed at the lifecycle of the product. Pricing tactics takes into account the market, shifts in demand, competition, and are more temporary, say over an introductory promo period or a particular quarter.

The three pricing strategies are penetrating, skimming, and following. Penetrate: Setting a low price, leaving most of the value in the hands of your customers, shutting off margin from your competitors.

To help determine your optimum price tag, here are five critical Cs of pricing:

• Cost. This is the most obvious component of pricing decisions.
• Customers. The ultimate judge of whether your price delivers a superior value is the customer.
• Channels of distribution.
• Competition.
• Compatibility.

Price is important to marketers because it represents marketers’ assessment of the value customers see in the product or service and are willing to pay for a product or service. Both a price that is too high and one that is too low can limit growth. The wrong price can also negatively influence sales and cash flow.

Issues that arise in the setting of prices can be divided into three categories: (1) the question of interactive versus fixed prices, (2) the pattern of an organization’s prices, and (3) how a price can be expressed when communicated to potential buyers.

Pricing Strategy: How to Raise Prices Without Losing Customers

1. Just Raise Your Prices. The first method you could use for raising your prices is the simplest – just raise your prices!
2. Raise Prices Gradually.
3. Increase the Perceived Value of Your Products.
4. Increase the Actual Value with Added Services.
5. Add Premium Price Options on Your Products.
6. Offer Multi-Product Packages.

Cost-Based Pricing. Cost-based pricing involves calculating the cost of the product, and then adding a percentage mark-up to determine price.

Lawyers, accountants and other professionals typically price by adding a simple standard markup to their costs, using this simple cost-based pricing method. Let’s look at an example: a toaster manufacturer has the following costs: Variable costs: $10, Fixed costs: $300,000. Expected unit sales are 50,000.

A cost-based pricing strategy is implemented so a company can make a certain percentage more than the total cost of production and manufacturing. Ultimately, this strategy is used to determine how many units a company needs to sell to break even, instead of marking up each individual unit.

Disadvantages:

• Ignores competition. A company may set a product price based on the cost plus formula and then be surprised when it finds that competitors are charging substantially different prices.
• Contract cost overruns.
• Ignores replacement costs.
• Ignores value.

Disadvantages

• These methods ignore demand and the price elasticity of demand.
• Ignores the competitive situation e.g. what competitors are charging.
• Does not take advantage of market potential for example if a product is new and innovative such as the iPad was when it was introduced there is potential to charge a high price.

Advantages of Value-based Pricing

• You can easily penetrate the market.
• You can command higher price points.
• It proves real willingness-to-pay data.
• It helps you develop higher quality products.
• It increases focus on customer services.
• It promotes customer loyalty.
• It increases brand value.
• It balances supply and demand.

An example of economy pricing is generic food sold at grocery stores. The generic items are priced lower due to the fact that they require very little marketing and promotion expenses.