The practice of introducing a new product on the market with a high price and then lowering the price over time is called price skimming.

Price skimming and penetration pricing are strategies used in pricing new products other strategies such as leader pricing and bundling may be used for established products as well. Managers use various pricing strategies when determining the price of a product, as this section explains. Sometimes, as in the case of services, a price that is too low will cause the product to viewed as less than credible and lose sales for the company. If the price is too low, consumers may view the product as a great value, but the company may not meet its profit goals. If consumers think the price is too high, sales opportunities will be lost. The chosen price must be neither too high nor too low, and the price must equal the perceived value to target consumers. Managers strive to charge a price that will allow the firm to earn a fair return on its investment and will maximize return on investment to the highest extent while still maintaining a fair return. The money that is left over (if any) is profit. Revenue is what pays for every activity of the company (production, finance, sales, distribution, and so forth). The prices charged customers times the number of units sold equals the gross revenue for the firm. Price is important in determining how much a firm earns. If a student exchanges this book for a math book at the end of the term, that student has engaged in barter. When products are exchanged for each other, the trade is called barter. The price paid for a product is based on the expected satisfaction that the customer will receive and not necessarily the actual satisfaction of the customer.Īlthough price is usually a dollar amount, it can be anything with perceived value. After a consumer has used a product, the consumer may decide that its actual value was less than its perceived value at the time it was purchased.

Note that perceived value refers to the perception of the product’s value at the time of the transaction.

Thus, price is typically the amount of money exchanged for a product. Value in our society is most commonly expressed in dollars and cents. Price is the perceived value that is exchanged for something else. What strategies are used for pricing products, and what are the future trends?Īn important part of the marketing planning process is setting the right price.

Companies using penetration pricing