Types of Pricing Methods

What are the different types of pricing methods?

Pricing is one of the most difficult tasks for a marketer to decide. With a lower price the marketer needs to compromise with profit and with a higher price, he/she has to compromise with sales. There are some common pricing techniques which help in both marketing and selling of the product. These are the following:

Premium Pricing: A high price set by companies if their product’s quality is much better than other products in their category, e.g. Raymond, iPhone, 5-star hotels, etc.

Economy Pricing: A low price set by marketers when they’re looking to sell the maximum volume of the product. They do so by cutting off the marketing costs and keeping the production cost minimum. Price sensitive people buy these products generally. It works best at the time of recession. Some examples are generic medicines, local food items, un-branded clothes, etc.

Penetration Pricing: When the marketers try to sell the product where many competitors are already existing, they adopt penetration pricing strategy. In this, the product is first priced very low. Once the customer base gets strong, the price is increased. Some examples are Lehar namkeens, Haldiram’s snacks (chips packets were cheaper initially), Reliance network (night calling especially), etc.

Predatory Pricing: It is the higher degree of penetration pricing when the product is sold at almost free, e.g. Jio 4G data. It is banned in many countries like UK and China because most competitors can’t compete with something like this.

Skimming Pricing: The strategy in which the product is first kept at a high price, and then gradually the price is decreased. It is adopted when the product is one of its kind initially. When the competitors see profit in this, they produce substitute products and the price of original one has to be reduced. Some examples are mobile phones (Nokia 1100 initially cost more than 30,000 INR), computers, video games (Game boy advance and Nintendo), etc.

Dynamic/Surge Pricing: The pricing strategy adopted on the basis of customer’s demand and product’s supply. It is also called variable pricing. It is generally used in booking a flight ticket (prices increased as seats are getting booked), in cabs like Ola and Uber (Fare increases due to a high demand of cabs) and now in railways also (in Rajdhani, Shatabdi and Duronto).

Psychological Pricing: Psychological or charm pricing is used to attract customers. In this strategy, prices are kept like 99 INR or 249 INR in place of 100 INR or 250 INR respectively. In India, Bata company got famous due to its ’95 paise price tag’ (Pricing 124.95 INR or 299.95 INR)

Captive Product Pricing: A pricing strategy in which core product is kept at a low price while captive product, which is necessary to use the core product, is kept at a high price. It is generally adopted when the core product can be used for a long time without the need to purchase the new one, but the captive product must be purchased again and again. The best example for this is the Gillette shaving blade where the razor comes at a low price but its blade is costly. Other examples are Printers and ink cartridges, Video game consoles and video game DVD’s, etc.

Optional Product Pricing: Companies adopt this strategy to cross-sell the products when a customer starts buying from them. They keep the core product at a low to normal price and then sell different accessories/services related to that product. For example, Movies are charged normally but the cost of watching a movie increases if we buy popcorns and Coldrinks. Some other examples are booking in flights with a confirmed window seat, extra topping and side dishes with pizza, etc.

Bundled Pricing: companies sell a package of goods or services at a cheaper rate than the price if bought separately, e.g. 5 in 1 meal of KFC, buy 2 get 1 free offers, etc. 

Geographical Pricing: Almost all products and services have different prices in different locations. Prices vary due to different distribution costs, different tariffs and customers’ ability to purchase. For example, iPhones cost lower in Dubai. Dominos’ Pizza costs about 4 times more in the UK than India.