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2. Competition mark-ups
5. Type of product
• Important points:
• Selling Price: Reflects perceptions of benefits they expect to enjoy from the product.
• If benefits are perceived to be substantial, customers are willing to pay multiple times the
cost price.
• Greater understanding of the customer’s needs/ wants/ values of your customer, the better
Competition-based pricing:
1
1. Same product – easily distinguishable from competition: Competition changes
will not impact our own products’ demand.
Cost-plus Pricing:
- Competition
o Advantages:
ii) Simple
• Disadvantages :
Circular reasoning:
price further.
2
Market-skimming:
o Take advantage of the novelty appeal of the product, when demand is initially
inelastic.
o Safeguard against unexpected future increases in costs/ large fall in demand after
novelty fades.
o Appropriate when:
- Product is new/ different from other products in the market (little direct competition).
- Price elasticity of demand is unknown (better start high and decrease gradually).
introduced.
- Business is risky.
- More favorable in cases where barriers to entry exist (patents, prohibitively high
Market Penetration:
Charge low prices at the launching of the product to gain acceptance/ market share.
Appropriate when:
- When there are significant economies of scale from a high volume of output.
3
To be effective:
- Elastic product.
Complementary product:
• A product normally used with another product (e.g. razors + razor blades,
Product-line pricing:
products are related but may vary in terms of style, color, quality etc.
• Making the price entry point for the basic product relatively cheap.
Volume-discounting pricing:
4
• Cumulative Quantity discounts: Discount increases as the cumulative total
ordered increases.
• Increased loyalty.
• Lower Sales Processing costs: Fewer sales but higher quantities sold each
time.
Price discrimination:
• Segmentation:
- Time
- Age
- Gender
- Type of service
- Geography
- Quantity
- Customer type
Not possible for customers to buy cheap in one market and sell high in