Pricing a Product

Once a business has a product to sell, the next consideration is how to price the product. The business wants to price the product high enough to make a profit, but not so high that a typical customer wouldn't buy it. Read this section to learn about various pricing strategies.

  • With a new product, a company might consider the skimming approach – starting off with the highest price that keenly interested customers are willing to pay. This approach yields early profits but invites competition.
  • Using a penetration approach, marketers begin by charging a low price, both to keep out competition and to grab as much market share as possible.
  • Several strategies work for existing as well as new products.
  • With cost-based pricing, a company determines the cost of making a product and then sets a price by adding a profit to the cost.
  • With demand-based pricing, marketers set the price that they think consumers will pay. Using target costing, they figure out how much consumers are willing to pay and then subtract a reasonable profit from this price to determine the amount that can be spent to make the product.
  • Companies use prestige pricing to capitalize on the common association of high price and quality, setting an artificially high price to substantiate the impression of high quality.
  • Finally, with odd-even pricing, companies set prices at such figures as $9.99 (an odd amount), counting on the common impression that it sounds cheaper than $10 (an even amount).