Pricing strategies: Cost-based pricing and pricing based cost

Basically there are two pricing strategy, Cost-based pricing and pricing based cost.

Cost-based pricing (more traditional) is the price that you charge to cover the cost and make profit.

Pricing-based cost is you charge the price that your customers are willing to pay. In this case  you need to study your target group and their characteristics. If you don’t want to pay high price for your product, you reduce the cost in production. Then, adjust the price that they want to pay.

But there are many more pricing strategies for different products and situations as follows;

Premium is a pricing: is you use to fit the product image. The better image of your product, the better price you charge (especially for luxury products such as Mercedes, BMW, LV)

Penetration pricing: is that you use to attract more customers. Once you achieved the desired level, the price will be increased.

Economy pricing: is that you charge the lowest possible by reducing the cost of marketing and manufacturing. (Such as Airasia, some commodities at the supermarket).

Price skimming: is that you charge high for the competitive advantage but when competitors come into the market you reduce the price to attract more customers and hit out the competitors.

Psychological pricing: one unit for 99, 199, 59,599 (dollar) is the psychological pricing. Most people see only the first digit. is the price that you charge to trick customers.

Product line pricing: is the price that you charge for added items or services. For example a hair cut is $5 and cut and wash is $9. This is called product line pricing.

Optional product pricing: is the pricing strategy that you charge for some extras. For example, the normal hotel room is $200 but the room with sea front could be $300 in the same building.

Captive product pricing: is the price that you charge premium for some complements of your products. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.

Product bundle pricing: is the price that you charge lower price for a bundle of products. The buyer may not need all the items in the bundle, but it attracts their attention to buy more with lower price. Videos and CDs are often sold using the bundle approach.

Promotional pricing: is the price that you charge to get more customers or to sell your old products out. For example, buy two get one.

Geographical pricing: is the price that you charge for the same product differently at different locations based on the demand cost of shipment.

Value pricing: is the price that you charge for the value that your customers perceive of your product or service. Therefore, you can charge better than your competitors. Behind value-pricing strategies there are a few important concepts:

Customers are value conscious rather than price conscious e.g. some customers will pay extra for prompt delivery.

The selling price is based on customers’ perceived value rather than on the vendor’s costs e.g. an e-book costs less to produce than a paperback but readers will pay more for it because of the value placed on format and instant delivery.

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