Price Fixing Strategies

Price fixing strategies

Penetration strategy

It consists on fixing low prices since the release of a product to get, from the beginning, the largest market share possible. It is usually recommended if the product is not a real novelty (entrance as an imitator in the growth phase, for example) and we are in a market that is very price sensitive. It assumes, in a way, a defensive strategy against the entry of new competitors, since with a low reference price, with little margin, we are turning the market unattractive to these potential competitors.

Is the case of Samsung, that, taking advantage of the standards and innovation generated by Apple when creating the iPhone, released some mobile phones very similar, but with a very lower price, since Samsung spent much more less in I+D (just copy) and in promotion (the market was already open and in the growth phase) and improved the production process (all the lines of production in Korea).

Skimming strategy

It is the opposite approach. If the company sets a high price at the beginning along with much investment in communication, can capture those consumers who are willing to pay more for products (cream of the market). Then prices will go down gradually to access the rest of consumers. This approach is only possible if the product is really new and there are those consumers who seek novelty at any price. Since these high prices will attract competition soon, is particularly appropriate when the products are difficult to imitate (e.g., are protected by a patent).

Is the case of Apple, which, making use of some characteristics of their products, is able to situate the price as something secondary in the mind of the client, who just adores the beautifulness of the products and believes that they are impossible to imitate. Apple generates a thinking of excellence, so the consumer is willing to pay higher prices.

Two-part pricing strategy

The price of the good is divided into a fixed part which entitles the use of the service, and a variable according to consumption. It is habitual in the world of telecommunications, as, for example, Telefónica.

Unique pricing strategy

It consists on offering all the products of a line at the same price. The logic is that the consumer, when choosing, forget the price, which is common, and focus its attention in other aspects than price (design, colour), facilitating the purchase decision. Massimo Dutti uses this strategy, setting the same price for all their shirts.

Odd pricing strategy

Odd prices try to seem lower the price, thanks to psychological effects and the customer subjective perception. This strategy is largely used in general. For example, by some supermarkets, as Carrefour, that set the price of some products

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