Customers are willing to spend for the optional product as well. Because of this optional product, there is more revenue generated from the main product. Examples may be extra seat space, more drinks etc. However, once the customers start purchasing these seats, they are offered optional features along with the seats. For example, the basic product of KLM Airlines is offering or providing seats in the airplane for different flights. It can be frequently observed in the case of airline companies. When employing this strategy companies usually put a higher price on the captive products resulting in increased revenue margins, than on the core product. For example, the ink for a printer is a captive product where the core product is the printer. It is a type of pricing which focuses on captive products accompanying the core products. Also, when the product declines in turnover, keeping the same price effects the margins thereby causing an early demise. However, with this type of strategy, there is no opportunity to make higher profits and at the same time, it doesn’t allow for increasing the market share. This type of pricing focuses on keeping the price at the same level for all four periods of the product lifecycl. This strategy can frequently be seen in the supermarkets and small shops. However, it makes a great difference in the mind of the customers. The difference in price is actually completely irrelevant. Customers are more willing to buy the necessary products at $4,99 than products costing $5. It is a type of pricing which can be translated into a small incentive that can make a huge impact psychologically on customers. Thus, to get maximum margins from their products, innovative companies keep launching new variants so that customers are always in the discovery phase and paying the required premium. It can be the case for innovative electronics entering the marketing before the products are copied by close competitors or Chinese manufacturers.Īfter being copied, the product loses its premium value and hence the price has to be dropped immediately. Skimming is a type of pricing used by companies that have a significant competitive advantage and which can gain maximum revenue advantage before other competitors begin offering similar products or substitutes. Examples of companies focusing on this type of pricing include Walmart, Lidl and Aldi. Just the bare minimum to keep prices low and attract a specific segment of the market that is highly price sensitive. This type of pricing takes a very low cost approach. This strategy is used mainly to increase brand awareness and start with a small market share. And finally, this strategy never creates long term brand loyalty in the mind of customers. Or the margins are so low that the company does not survive. However, this is a sensitive strategy to apply as the market might be penetrated by yet another new entrant. This usually depends on your individual marketing goals and objectives. During the price planning process, your main focus should lie in finding the right price point where you can maximize your sales and profits. There are several factors which need be taken into consideration before setting up prices, and these factors are influenced by current market supply and demand, competition levels as well as other political and economic influences. The dilemma is, if you set the price too high you risk losing customers or not attracting customers at all, and if you set it too low, you will probably have no return on your investment and very low margins. When establishing a new company or even after years of existence on the market, it is a big challenge to set up the right price for your products and services. This is because the type of pricing can alter the distribution and the promotion mix as well. However, the second most important factor in the marketing mix after product is the type of pricing being used. The marketing mix is a very important concept of marketing which involves the 4 main elements i.e people, promotion, place and price.
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