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down the price spectrum。
Skim vs penetrate
You need to decide between two generic pricing strategies before you can
fine…tune your plans。 Skimming involves se。。ing a price at the high end of
what you believe the market will bear。 This would be a strategy to pursue
if you have a very limited amount of product available for sale and would
rather ‘ration’ than disappoint customers。 It is also a way to target the
‘innovators’ in your market who are happy to pay a premium to be among
the first to have a new product。 To be successful with this strategy you
would need to be sure that petitors can’t just step in and soak up the
demand that you have created。
Penetration pricing is the mirror image; prices are set at the low end;
while being above your costs。 Prices are petitive; with the deliberate
intention of eliminating your customers’ need to shop around。 Slogans such
as ‘everyday low prices’ are used to emphasize this policy。 The aim here is
to grab as much of the market as you can before petitors arrive on the
scene and hopefully lock them out。 The danger here is that you need a lot
of volume either of product or hours sold before you can make a decent
profit。 This in turn means tying up more money for longer before you break
even。
Dragon Lock (the executive puzzle makers); who were Cranfield enterprise
programme participants; adopted a skim strategy when they launched
their new product。 Their product was easy to copy and impossible to patent;
so they chose a low price as a strategy to discourage petitors and to
swallow up the market quickly。
Danger of low pricing
Aside from the obvious possible problems of the cash…flow implications
of stretching out the break…even horizon and quality/image issues; it is an
immutable law that raising prices is a whole lot more difficult than lowering
them。 It is less of a problem if the market as a whole is moving up; but
raising a price because you set it too low in the first place is a challenge to
say the least。
Marketing 99
Value pricing
Another consideration when se。。ing your prices is the value of the product
or service in the customer’s mind。 His or her opinion of price may have li。。le
or no relation to the cost; and he or she may be ignorant of the price charged
by the petition; especially if the product or service is a new one。 In fact;
many consumers perceive price as a reliable guide to the value they can
expect to receive。 The more you pay; the more you get。 With this in mind;
had Dyson launched its revolutionary vacuum cleaner; with its claims of
superior performance; at a price below that of its peers; then some potential
customers might have questioned those claims。 In its literature Dyson cites
as the inspiration for the new vacuum cleaner the inferior performance of
existing products in the same price band。 A product at six times the Dyson
price is the one whose performance Dyson seeks to emulate。 The image
created is that; although the price is at the high end of general run…of…themill
products; the performance is disproportionately greater。 The runaway
success of Dyson’s vacuum cleaner would tend to endorse this argument。
Real…time pricing
The stock market works by gathering information on supply and demand。
If more people want to buy a share than sell it; the price goes up until
supply and demand are matched。 If the information is perfect (that is;
every buyer and seller knows what is going on); the price is optimized。 For
most businesses this is not a practical proposition。 Their customers expect
the same price every time for the same product or service – they have no
accurate idea what the demand is at any given moment。
However; for businesses selling on the internet; puter networks
have made it possible to see how much consumer demand exists for a
given product at any time。 Anyone with a point…of…sale till could do the
same; but the reports might e in weeks later。 This means that online
panies could change their prices hundreds of times each day; tailoring
them to certain circumstances or certain markets; and so improve
profits dramatically。 easyJet; a budget airline; does just this。 It prices
to fill its planes; and you could pay anything from £30 to £200 (including
airport taxes) for the same trip; depending on the demand for that flight。
Ryanair and Eurotunnel have similar price ranges based on the basic rule
– discounted low fares for early reservations and full fares for desperate
late callers!
Internet auction pricing
Once the prerogative of the fine art and antiques markets; auctioning is
a fast…growing pricing strategy for a whole host of very different types
of business。 The theory of auctioning is simple。 Have as many interested
potential buyers as possible see an item; set a time limit for the transaction
100 The Thirty…Day MBA
to be pleted and let them fight it out。 The highest bidder wins and;
in general; you can get higher prices than by selling through traditional
pricing strategies。 eBay was a pioneer in the new auction house sector and
is still perhaps the best known。 But there are dozens of others covering this
area and other auction houses you can plug into:
。 eBay (ebay。uk/university) has its own ‘university’ training
160;000 or so people in the UK; PowerSellers as they are known; in the
art of successful auctioning。
。 IBidFree (ibidfree); set up by Shane McCormack; a
former eBay seller; with the proposition that you can have all the features
of eBay but for free。 IBidFree was created as a perfect opportunity
for the person working from home trying to market their products
without all of their profits being swallowed up by charges and fees。 The
rules are few and; unlike eBay; sellers are encouraged to place a link in
their auctions back to their own websites。 They are also allowed to email
each other directly to allow for be。。er munication。
。 UBid (ubid); founded in 1997; went public in 2005。
Its online marketplace provides merchants with an efficient and economical
channel for selling on their surplus merchandise。 UBid currently
carries over 200;000 i