Pricing Strategies - Pricing Decision, Marketing Management Video Lecture | Marketing Management - B Com

farmer Joe's market has continued to
thrive this year his organic products
bakery goods and cooking classes have
made his business a favorite place to
shop for most of the town farmer Joe's
daughter's Apple and Peach have created
a new product that they are petitioning
to get added to the product offerings
for the market the product is a
genetically altered broccoli that makes
the product taste like rich chocolate it
will be called choco brocco the
daughters know that this will be a huge
success as parents always have had
difficulty getting their kids to eat
veggies they hope to expand this product
line flavor to other kid adverse veggies
their dad has agreed to stock the
product but everyone is confused as to
how to price the choco brocco in a
late-night meeting the family has
decided to discuss what pricing strategy
should be selected for the new product
line a pricing strategy sets the initial
price of the product and provides a plan
for price changes over time there are
three pricing strategies that farmer Joe
can choose from price skimming
penetration pricing and status quo when
Apple and Peach start to think about
what to price their choco Braco
they first think about how much it costs
to make choco Braco is costly to develop
due to the genetic altering process
involved the daughter's want to recoup
their financial investment of $10,000
that was need to fund the development of
the chocolate tasting broccoli a price
strategy that would allow for the
daughters to get their investment back
would be a price skimming model this
strategy consists of charging and high
introductory price in tandem with heavy
promotion and later slowly dropping the
price price skimming is usually used
when the product has a strong unique
advantage that's not easily copied is
also the best strategy to use when
trying to recover large investments in
development and marketing both Apple and
Peach feel that this policy might be the
answer to their price dilemma but are
willing to continue researching the
other pricing strategies to make sure
they make the best decision possible
penetration pricing is when a company
charges a low price for their product
initially in order to reach the largest
amount of their target market
this pricing philosophy believes that
the more people
that by a product the more positive
word-of-mouth will occur which will
produce more sales and profits the lower
price will attract consumers to try a
new product and also lead to a larger
market share this type of pricing
strategy is best if the consumers are
price sensitive penetration pricing does
discourage new competitors because they
cannot match production with a lower
price some companies run into difficulty
when adapting penetration pricing a low
price can produce a huge demand for the
product and a company must be able to
provide the volume demanded if a
shortage occurs then the company will
have disgruntled customers who are
unable to get a hold of the product the
last issue with using a penetration
pricing model is that if is used by a
prestigious brand it can cause loss in
brand equity for example if a luxury car
manufacturer introduces a low price
starter sedan it could dilute that
brands best strategy a consumer who
spends an enormous amount of money on a
luxury sedan would feel that her social
status has been minimized if their
college-aged neighbor purchases a
starter version of the brand Apple and
Peach will not offer penetration pricing
as they would not be able to make enough
profit to recoup their $10,000
investment the last pricing strategy is
called status quo pricing which means
matching competitors pricing or charging
close to the competition many clothing
companies follow this type of pricing by
sending out researchers to see what
their competitors are charging for
similar products airlines like to use
status quo pricing as well to keep
consumers apple and peach have noticed
that bunches of regular broccoli sell
for $3 each in stores however both apple
and peach have disregarded status quo
pricing since they do not have any real
competitors yet the product is new and
unique so they do not need to worry
about any other farm growing the chaco
Braco since apple and peach want to
market their new chocolate tasting
broccoli at their dad's farmers market
they need to choose the best pricing
strategy in order to market their
product effectively to the target market
they consider three options prey
skimming penetration pricing and status
quo the daughters have decided to choose
price giving since they need to position
the product as a premium choice for
consumers and recoup their $10,000
investment since ordinary broccoli sells
for $3 a bunch the daughters have
decided to price their new product at $5
a bunch